Company makes a single product that it sells for 180 per uni

Company makes a single product that it sells for $180 per unit and has a contribution margin ratio of 28%. The company\'s fixed costs are $98,000.If desires a monthly target operating profit equal to 20% of sales, what will sales have to be?

Solution

Fixed cost: 98000 Contribution margin ratio 28% of sales (which includes both fixed cost and operating income) Desired Income 20% of sales Therefore, Contribution margin for fixed cost 8% of sales Desired Sales : Fixed c ost / Cm ratio for fixed cost 98000 / 8%   = $ 1225,000