The contribution margin ratio is 25% for Crowne Company and the break-even point in sales is $200,000. If Crowne Company's target operating profit is $60,000, sales would have to be:
A) $260,000.
B) $440,000.
C) $280,000.
D) $240,000.

Question

Quizplus · Accepted Answer

To achieve a target operating profit of $60,000, Crowne Company needs to cover both the break-even sales and the desired profit. The formula is: Required Sales = (Fixed Costs + Target Profit) / Contribution Margin Ratio. Given the break-even sales of $200,000 and a contribution margin ratio of 25%, the fixed costs are $50,000 (since $200,000 * 25% = $50,000). Therefore, Required Sales = ($50,000 + $60,000) / 0.25 = $440,000.

The Contribution Margin Ratio Is 25% for Crowne Company and the Break-Even