If the contribution margin ratio is 60%, target operating income is $50,000, and the sales revenue needed to achieve the target operating income is $800,000, what are total fixed expenses?

Question

Quizplus · Accepted Answer

Total fixed expenses can be calculated using the formula: Fixed Expenses = Sales Revenue - (Contribution Margin Ratio * Sales Revenue) - Target Operating Income. Given a Contribution Margin Ratio of 60%, Sales Revenue of $800,000, and Target Operating Income of $50,000, the calculation is: Fixed Expenses = $800,000 - ($800,000 * 60%) - $50,000 = $800,000 - $480,000 - $50,000 = $270,000. However, this calculation seems incorrect based on the provided options, indicating a misunderstanding in the question's premise or a mistake in the calculation. The correct approach to find the total fixed expenses given the information would actually involve understanding that the contribution margin covers both the fixed expenses and the target operating income. Therefore, with a 60% contribution margin ratio, and a target income of $50,000, the correct calculation should align with the formula for determining sales revenue or fixed expenses based on the given options, but the provided calculation and options do not directly align with standard accounting formulas. Reevaluating, the correct approach is to understand that if $800,000 in sales is needed to achieve a $50,000 operating income at a 60% contribution margin ratio, then $480,000 (60% of $800,000) is the total contribution margin. Subtracting the target operating income from this gives us the fixed expenses: $480,000 - $50,000 = $430,000. This corrects the initial explanation error.

If the Contribution Margin Ratio Is 60%, Target Operating Income