Question

The records of Gemini Company show a contribution margin ratio of 40%. The company desires to earn a profit of $40,000 and has fixed costs of $80,000. What sales revenue would have to be generated in order to earn the desired profit

Answer 1

$300,000

Step-by-step explanation:

Given that,

Contribution margin ratio = 40%

Company desires to earn a profit = $40,000

Fixed costs = $80,000

Required sales revenue:

= (Fixed cost + Desired profit) ÷ Contribution margin ratio

= ($80,000 + $40,000) ÷ 0.40

= $120,000 ÷ 0.40

= $300,000

Therefore, the sales revenue of $300,000 would have to be generated in order to earn the desired profit.