If the contribution margin ratio is 0.40,targeted operating income is $50,000,and fixed costs are $75,000,then sales volume in dollars is ________.
A) $250,000
B) $312,500
C) $275,000
D) $350,000

Question

Quizplus · Accepted Answer

Using the formula:
Contribution Margin Ratio = (Sales - Variable Costs) / Sales

We can rearrange it as:
Sales - Variable Costs = Contribution Margin
Sales - (Sales * Variable Cost Ratio) = Contribution Margin
Sales * (1 - Variable Cost Ratio) = Contribution Margin

Since the Contribution Margin Ratio is 0.40, then the Variable Cost Ratio is 0.60.
So we can write:
Sales * 0.40 = Contribution Margin

And since we know the targeted operating income is $50,000 and the fixed costs are $75,000, we can write:
Contribution Margin - Fixed Costs = Targeted Operating Income
Sales * 0.40 - $75,000 = $50,000
Sales * 0.40 = $125,000
Sales = $125,000 / 0.40
Sales = $312,500

Therefore, the sales volume in dollars is $312,500, which is answer choice B.

If the Contribution Margin Ratio Is 0