The break-even point in dollar sales for Rice Company is $480,000 and the company’s contribution margin ratio
is 40 percent. If Rice Company desires a profit of $84,000, how much would sales have to total?
Answer:
Fixed cost $288,000
Variables cost $192,000 (0.4)= $76,800 each marginal $ sale $0.40 variables
MS=(84,000/0.6)=$140,000
Break even sale + marginal sale
$480,000 + 140,000 = $620,000
Fixed cost + variable cost = total cost
$288,000+$76,800=$364,800
Profit =480,000-364,800
Profit= $115,200
my answer came back wrong, can you please help me.. thanks
480,000 x 60% = $288,000 variable cost
480,000 - 288,000 = $192,000 fixed costs
192,000 + 84,000 + 0.60x = x
276,000 = 0.40x
x = $690,000 sales
Check
690,000 Sales
- 192,000 Fixed Costs
- 414,000(0.60 x 690,000) variable costs
= $84,000 profit
Sure! Let's go through the problem together to find the correct answer.
We are given:
Break-even point in dollar sales = $480,000
Contribution margin ratio = 40%
Desired profit = $84,000
First, let's calculate the variable cost per dollar of sales:
Variable cost per dollar of sales = Contribution margin ratio * Total sales
Variable cost per dollar of sales = 0.40 * Total sales
Variable cost per dollar of sales = 0.4 * Total sales
Now, we can calculate the variable cost:
Total variable cost = Variable cost per dollar of sales * Total sales
Total variable cost = 0.4 * Total sales
Next, let's calculate the fixed cost:
Fixed cost = Break-even point in dollar sales - Total variable cost
Fixed cost = $480,000 - (0.4 * Total sales)
Fixed cost = $480,000 - 0.4 * Total sales
To find the total sales needed to achieve the desired profit, we can use the following equation:
Total sales = (Fixed cost + Desired profit) / Contribution margin ratio
Total sales = ($480,000 + $84,000) / 0.4
Total sales = $564,000 / 0.4
Total sales = $1,410,000
Therefore, to achieve a profit of $84,000, the sales would have to total $1,410,000.
I hope this explanation helps! Let me know if you have any further questions.