For Blossom Company, variable costs are 70% of sales, and fixed costs are $182,000. Management's net income goal is $67,000. Compute the required sales in dollars needed to achieve management's target net income of $67,000. (Use the contribution margin approach.) Required sales $
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
![### Blossom Company Financial Analysis Exercise
**Variable Costs and Fixed Costs Analysis**
- **Variable Costs**: 70% of sales
- **Fixed Costs**: $182,000
- **Management's Net Income Goal**: $67,000
**Objective**:
Compute the required sales in dollars needed to achieve management's target net income of $67,000 using the contribution margin approach.
**Calculation Method**:
1. **Determine Contribution Margin Ratio**:
\[ \text{Contribution Margin Ratio} = 1 - \text{Variable Cost Ratio} \]
\[ \text{Contribution Margin Ratio} = 1 - 0.70 \]
\[ \text{Contribution Margin Ratio} = 0.30 \]
2. **Calculate Required Sales**:
Use the formula:
\[ \text{Required Sales} = \frac{\text{Fixed Costs} + \text{Target Net Income}}{\text{Contribution Margin Ratio}} \]
\[ \text{Required Sales} = \frac{182,000 + 67,000}{0.30} \]
**Required Sales**:
\[ \text{Required Sales} = \$ \]
**Input the Required Sales Value**:
\[ \text{Required Sales} = \$ \]
You are required to enter the computed sales value in the designated field to determine the total necessary sales to meet the target net income.
*(Include detailed breakdowns and intermediate calculation steps wherever possible for enhanced understanding).*](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37e2f913-30b2-4c8c-98d5-339163057ff1%2F761ce4a6-fc2c-4242-843a-1df6c5fa86f4%2Ffq1evfi_processed.jpeg&w=3840&q=75)
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