A firm's products have an average contribution margin ratio of 40%, which will be maintained for the next month even though fixed expenses are expected to rise by $20,000.In order to keep operating income for the month from being affected, revenues will have to increase by:

Question

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To offset the $20,000 increase in fixed expenses without affecting operating income, the firm needs to generate additional contribution margin of $20,000. With a contribution margin ratio of 40%, the required increase in revenue is $20,000 / 0.40 = $50,000.

A Firm's Products Have an Average Contribution Margin Ratio of 40