For Wickham Co., sales is $3,000,000, fixed expenses are $900,000, and the contribution margin ratio is 36%. What is required sales in dollars to earn a target net income of $600,000?
A) $1,666,667
B) $2,500,000
C) $4,166,667
D) $8,333,333

Question

Quizplus · Accepted Answer

First, we need to calculate the current contribution margin:

Contribution margin = Sales x Contribution margin ratio
CM = $3,000,000 x 0.36 = $1,080,000

Next, we can use the formula to calculate the required sales for a target net income:

Required sales = (Fixed expenses + Target net income) / Contribution margin ratio
RS = ($900,000 + $600,000) / 0.36 = $4,166,667

Therefore, the best choice is C, as it represents the required sales in dollars to earn a target net income of $600,000.