Question

Last year, Flynn Company reported a profit of $70,000 when sales totaled $520,000 and the contribution margin ratio was 40%. Assume that the fixed expenses will increase by $10,000 next year 34. Required: Compute the amount of sales that will be necessary in order for the company to earn a profit of $80,000. Show your work if you want partial credit. Total points: 12

Answer 1

Answer:

$570,000

Explanation:

The calculation of amount of sales is shown below:-

Contribution = $520,000 × 40%

= $208,000

Fixed cost = Contribution - Profit

= $208,000  - $70,000

= $138,000

Revised fixed cost for next year = Fixed cost + Increased Fixed expenses

= $138,000 + $10,000

= $148,000

Amount of sales = (Profit + Fixed cost) ÷ Contribution margin ratio

= ($148,000 + $80,000) ÷ 40%

= $228,000 ÷ 40%

= $570,000