Asked by Princess Ritsu on Jun 23, 2024
Verified
Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio.If the company has set a target monthly income of $15,000,what dollar amount of sales must be made to produce the target income?
A) $245,000
B) $207,500
C) $37,300
D) $170,000
E) $39,200
Contribution Margin Ratio
The percentage of sales revenue that exceeds variable costs and contributes to covering fixed costs and generating profit.
Target Monthly Income
Target monthly income is the specific amount of income an individual or business aims to earn within a month to meet budgeting goals or financial obligations.
Fixed Costs
Expenses that do not change with the level of production or sales activities, such as rent, salaries, and insurance.
- Understand and calculate the contribution margin ratio and its application in target income, and break-even analysis.
- Use target income analysis to determine required sales in units or dollars to achieve a desired profit level.
Verified Answer
IR
ilynn rochaJun 28, 2024
Final Answer :
A
Explanation :
To achieve the target income, we use the formula: Required Sales = (Fixed Costs + Target Income) / Contribution Margin Ratio. Plugging in the values: Required Sales = ($83,000 + $15,000) / 0.40 = $245,000.
Learning Objectives
- Understand and calculate the contribution margin ratio and its application in target income, and break-even analysis.
- Use target income analysis to determine required sales in units or dollars to achieve a desired profit level.