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For Crane Company, variable costs are 65% of sales, and fixed costs are $182,000. Management’s net income goal is $75,250. Compute the required sales in dollars needed to achieve management’s target net income of $75,250. (Use the contribution margin approach.) Required sales $Type your answer here

Respuesta :

Answer:

Sales required for target profit = $735000

Explanation:

To calculate the target profit, we simply use the breakeven equation with an addition of target profit to the fixed costs. The break even in dollars is calculated by dividing the fixed costs by the contribution to sales ratio.

The contribution to sales ratio = Total contribution  / sales

Where,

Contribution = Sales - Variable costs

If variable costs are 65% of sales, Then

Total contribution here = 1 -0.65 = 35% or 0.35

We add the target profit to fixed costs = 182000 + 75250= 257250

Sales required to achieve target profit = 257250 / 0.35 = $735000