How much sales are required to earn a target net income of $200000 if total fixed costs are $250000 and the contribution margin ratio is 40%?
A) $625000
B) $1012500
C) $1125000
D) $500000

Question

Quizplus · Accepted Answer

We can use the formula:

Net Income = (Sales * Contribution Margin Ratio) - Fixed Costs

We are given:

Net Income = $200,000
Fixed Costs = $250,000
Contribution Margin Ratio = 40% or 0.4

Substituting these values in the formula, we get:

$200,000 = (Sales * 0.4) - $250,000

$200,000 + $250,000 = Sales * 0.4

$450,000 = Sales * 0.4

Sales = $1,125,000

Therefore, the answer is C, $1,125,000 in sales are required to earn a target net income of $200,000.

How Much Sales Are Required to Earn a Target Net