Assume the following cost behavior data for Graphic Arts Company: What volume of sales dollars is required to earn a before-tax income of $27,000?

Question

Assume the following cost behavior data for Graphic Arts Company:  What volume of sales dollars is required to earn a before-tax income of $27,000?

Quizplus · Accepted Answer

To calculate the volume of sales needed to earn a before-tax income of $27,000, we need to use the contribution margin ratio (CMR) formula:

CMR = (Total revenue - Total variable costs) / Total revenue

Using the data given in the question:

CMR = (1 - 0.6) = 0.4

We can use the CMR formula to calculate the sales volume needed to earn a before-tax income of $27,000:

0.4Q - 20,000 = $27,000
0.4Q = $47,000
Q = $47,000 / 0.4
Q = $117,500

Therefore, Graphic Arts Company needs to generate $117,500 in sales to earn a before-tax income of $27,000. None of the given choices are exact, but the closest choice is C, which is $198,000.

Assume the Following Cost Behavior Data for Graphic Arts Company