Last year, ActionAction Co. recorded sales revenues of $ 1 comma 800 comma 000$1
ID: 2337343 • Letter: L
Question
Last year,
ActionAction
Co. recorded sales revenues of
$ 1 comma 800 comma 000$1,800,000,
variable costs of
$ 900 comma 000$900,000,
and fixed costs of
$ 500 comma 000$500,000.
Requirements
(a)
ActionAction
$ 325 comma 000$325,000?
(b)
ActionAction
Requirement (a) At what sales dollar level will
ActionAction
earn a before-tax target profit of
$ 325 comma 000$325,000?
Begin by computing the contribution margin ratio. Enter the formula then compute the ratio. (Round the ratio to two decimal places.)
/
=
Contribution margin ratio
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=
(a)
At what sales dollar level willActionAction
earn a before-tax target profit of$ 325 comma 000$325,000?
(b)
At what sales dollar level willActionAction
break even?Explanation / Answer
Contribution margin = Slaes revenues - Variable costs
= $1,800,000 - $900,000
= $900,000
Contribution margin ratio = Contribution margin / Sales revenues
= $900,000 / $1,800,000
= 0.5
(a)
Sales dollars = (fixed costs+target profit) / contribution margin ratio
= ($500,000 + $325,000) / 0.5
= $1,650,000
(b)
Sales dollars = fixed costs / contribution margin ratio
= $500,000 / 0.5
= $1,000,000
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