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 $30 Variable Cost per Unit $15 Total Fixed Cost $15,000 For the upcoming period, the company wishes to generate operating income of $40,000. 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. [Selling Price - Variable Cast) Contribution Margin Ratio = Selling Price Note: The contribution margin ratio is calculated to one decimal place.) - $15) Contribution Margin Ratio = Step 2: Calculate the sales revenue required to attain the target income: (Target Income + Fixed Cost) Sales Dollars = Contribution Margin Ratio + $15,000) Sales Dollars - Step 3: Create a contribution margin Income statement, to check your previous work. Enter all amounts as positive numbers. Sales Total variable expense Total contribution margin Total fixed expense Operating income