Monsky Corporation produces and sells a single product whose contribution margin ratio is 60%. The company's monthly fixed expense is $420,000 and the company's monthly target profit is $13,000. The dollar sales to attain that target profit is closest to:

Question

Quizplus · Accepted Answer

First, use the contribution margin ratio formula to determine the company's break-even point:

Break-even point = fixed expenses / contribution margin ratio
Break-even point = $420,000 / 0.60
Break-even point = $700,000

Next, use the formula for the target profit to determine the company's required sales:

Required sales = (fixed expenses + target profit) / contribution margin ratio
Required sales = ($420,000 + $13,000) / 0.60
Required sales = $721,667

Therefore, the closest dollar sales to attain the target profit is $721,667, which is closest to choice C ($721,667).

Monsky Corporation Produces and Sells a Single Product Whose Contribution