KR Sales had $1,200,000 in sales last month.The variable cost ratio was 60% and operating profits were $80,000.What sales volume does KR's need to yield a $200,000 operating profit?

Question

Quizplus · Accepted Answer

First, we need to calculate KR Sales' current contribution margin:
Contribution Margin = Sales - Variable Costs
Contribution Margin = $1,200,000 - 0.60($1,200,000) = $480,000

Next, we can use the contribution margin ratio to calculate the sales volume needed for a desired operating profit:
Contribution Margin Ratio = Contribution Margin/Sales
$200,000 = ($1 - 0.60)Sales - $80,000
$280,000 = 0.40Sales
Sales = $700,000

However, this is the sales volume needed for a $200,000 operating profit from the current contribution margin. To find the total sales volume needed, we need to add the $1,200,000 in current sales:
Total Sales Volume Needed = $1,200,000 + $700,000 = $1,900,000

Therefore, the best choice is C ($1,500,000).

KR Sales Had $1,200,000 in Sales Last Month