Jazz Products has the following information available for the month of March:
$\begin{array}{lr}
\text { Sales (4000 units) } & \$ 40000 \
\text { Variable costs } & 18000 \
\text { Fixed costs } & 5000 \
\text { income } & \$ 17000
\end{array}$
The company's manager is considering several options to increase net income.By what amount do sales dollars need to increase in order for net income to increase to $25 000?

Question

Quizplus · Accepted Answer

To increase net income to $25,000, we first calculate the contribution margin ratio: $\frac{Sales - Variable Costs}{Sales} = \frac{40000 - 18000}{40000} = 0.55$. To achieve an additional $8,000 in net income ($25,000 - $17,000), we divide the desired increase in net income by the contribution margin ratio: $\frac{8000}{0.55} = \$14,545$.

Jazz Products Has the Following Information Available for the Month