Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution margin per unit of $4.What are the sales dollars required to meet a target operating income of $50,000?

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Quizplus · Accepted Answer

To find the sales dollars required to meet a target operating income, you can use the formula: (Fixed Costs + Target Operating Income) / Contribution Margin Ratio. First, find the contribution margin ratio, which is Contribution Margin per Unit / Selling Price per Unit. However, we're not given the selling price directly but can deduce it from the variable cost and contribution margin given. If the variable cost is $6 and the contribution margin is $4, the selling price per unit must be $10 ($6 variable cost + $4 contribution margin). Thus, the contribution margin ratio is $4 / $10 = 0.4. Then, plug into the formula: ($160,000 + $50,000) / 0.4 = $210,000 / 0.4 = $525,000.

Assume Total Fixed Costs of $160,000, Variable Costs Per Unit