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Grayson Enterprises manufactures springs and shock absorbers.Springs account for 40% of the company's total sales revenue,whereas shocks account for about 60%.The contribution margin ratios for springs and shocks are 45% and 35%,respectively.Grayson's fixed costs average $450,000 per month.
-In order to earn an operating income of $252,000,Grayson's monthly sales must be:

Question

Quizplus · Accepted Answer

To find the required sales to earn an operating income of $252,000, we first calculate the total needed contribution margin (CM) by adding the desired operating income to the fixed costs: $252,000 + $450,000 = $702,000. Next, we find the weighted average contribution margin ratio (WACMR) using the sales mix and individual CM ratios: (40% * 45%) + (60% * 35%) = 18% + 21% = 39%. Finally, we divide the total needed CM by the WACMR to find the required sales: $702,000 / 39% = $1,800,000.

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