Use this information (below) to answer questions 15 through 17: SHOW YOUR WORK F

Question

Use this information (below) to answer questions 15 through 17: SHOW YOUR WORK Fixed expenses Rent Salaries Depreciation $ 24,000 $ 40,000 $13,000 Variable expenses Cost of goods sold Supplies Sales commissions 58% of sales 7% of sales 5% of sales 15. What is the company's contribution margin ratio (%)? 16. What is the break-even point in dollars? 17. If the company wants to earn a profit of $20,000 instead of breaking even, what is the amount of sales or revenue dollars the company must achieve?

Explanation / Answer

15. Contribution margin ratio = Sales - variable expenses

Let the sales be 1, COGS will be 0.58, Supplies will be 0.07, sales commission will be 0.05

Contribution margin ratio = 30%

16. Break even point = Fixed expenses / contribution margin ratio

= 77000 / 0.3

= $2,56,666.67

17. Target profit = $20,000

Let the sales be x

x - 0.7x - 77000 = 20000

x = $3,23,333.33

Hence, amount of sales required to achieve a target profit of $20000 is $3,23,333.33

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