APPLY THE CONCEPTS: Target income $($sales revenue$)$

Another useful method for figuring out the type of performance your company will need to reach a target income is by using sales revenue. Rather than using the number of units, this method uses total sales revenue. In companies for which the total set of goods produced and sold is more varied, this would be the preferred method, as opposed to a business in which only one product is sold. Assume a company has pricing and cost information as follows:

Price and Cost Information Amount

Selling Price per Unit $$20$

Variable Cost per Unit $$10$

Total Fixed Cost $$12,000$

For the upcoming period, the company wishes to generate operating income of $$75,000.$ Given the cost and pricing structure for the company$$s product, how much sales revenue must it generate to attain its target income?

Step $1$: Calculate the contribution margin ratio:

The contribution margin ratio is the contribution margin in proportion to the selling price on a per$-$unit basis.

Contribution Margin Ratio $=($Selling Price $$ Variable Cost$)$

Selling Price

Note: The contribution margin ratio is calculated to one decimal place.$)$

Contribution Margin Ratio $=($$fill in the blank $066$e$1$d$001$fe$4079\_1$ $$10)$

$=$

fill in the blank $066$e$1$d$001$fe$4079\_2$

$fill in the blank $066$e$1$d$001$fe$4079\_3$

Step $2$: Calculate the sales revenue required to attain the target income:

Sales Dollars $=($Target Income $+$ Fixed Cost$)$

Contribution Margin Ratio

Sales Dollars $=($ $fill in the blank $066$e$1$d$001$fe$4079\_4+$ $$12,000)$

$=$

$fill in the blank $066$e$1$d$001$fe$4079\_5$

fill in the blank $066$e$1$d$001$fe$4079\_6$

Step $3$: Create a contribution margin income statement, to check your previous work. Enter all amounts as positive numbers.

Sales $fill in the blank $066$e$1$d$001$fe$4079\_7$

Total variable expense fill in the blank $066$e$1$d$001$fe$4079\_8$

Total contribution margin fill in the blank $066$e$1$d$001$fe$4079\_9$

Total fixed expense fill in the blank $066$e$1$d$001$fe$4079\_10$

Operating income fill in the blank $066$e$1$d$001$fe$4079\_11$