Sales Needed to Earn Target Income Chillmax Company plans to

Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of $81,900 by using the point in sales equation.

Solution

1 Sales revenue required = (Fixed costs+Required profit)/Contribution margin ratio = (78000+81900)/65%= $246000