Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company wants to increase its total contribution margin by 40% in the next year,all other factors remaining the same,by how much will it need to increase its sales?
A) $96,000.
B) $50,400.
C) $67,200.
D) $72,000.

Question

Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company wants to increase its total contribution margin by 40% in the next year,all other factors remaining the same,by how much will it need to increase its sales?
A) $96,000.
B) $50,400.
C) $67,200.
D) $72,000.

Quizplus · Accepted Answer

The contribution margin is the difference between the sales price and the variable cost. The total contribution margin is the contribution margin per unit multiplied by the number of units sold. To increase the total contribution margin by 40%, the company needs to increase its sales by 40% / (100% - 40%) = 66.67%. Therefore, the company needs to increase its sales by 66.67% * 4,000 units = 2,666.67 units. The increase in sales will be 2,666.67 units * $60 per unit = $160,000. However, the company's fixed costs will also increase by 40%, so the increase in total contribution margin will be $160,000 - 40% * $42,000 = $96,000.

Arthur Company Had the Following Data for the Year Just