Target ProfitRefer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?$fill in the blank 76bbeef61075022_12. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?$fill in the blank 76bbeef61075022_23. What would explain the difference between your answers for (1) and (2)?a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.b. Cover-to-Cover Company’s contribution margin ratio is lower, meaning that it’s more efficient in its operations.c. The companies have goals that are not in the relevant range.d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.Answers: a, b, c, d ### Contribution Margin Income Statement for Educational Purposes#### Contribution Margin Income Statement**For the Year Ended December 31, 20Y8**- **Sales:** $424,000- **Variable Costs:** - Manufacturing Expense: $254,400 - Selling Expense: $21,200 - Administrative Expense: $63,600 - **Total Variable Costs:** ($339,200)- **Contribution Margin:** $84,800- **Fixed Costs:** - Manufacturing Expense: $5,000 - Selling Expense: $4,000 - Administrative Expense: $12,200 - **Total Fixed Costs:** ($21,200)- **Operating Income:** $63,600---### Income Statement - Biblio Files Company#### Contribution Margin Income Statement**For the Year Ended December 31, 20Y8**- **Sales:** $424,000- **Variable Costs:** - Manufacturing Expense: $169,600 - Selling Expense: $16,960 - Administrative Expense: $67,840 - **Total Variable Costs:** ($254,400)- **Contribution Margin:** $169,600- **Fixed Costs:** - Manufacturing Expense: $88,000 - Selling Expense: $8,000 - Administrative Expense: $10,000 - **Total Fixed Costs:** ($106,000)- **Operating Income:** $63,600**Explanation:**Both income statements provide a breakdown of the financial performance for the year ended December 31, 20Y8. Each statement shows sales, subtracts variable costs to determine the contribution margin, subtracts fixed costs, and calculates the operating income. There are differences in cost allocations between variable and fixed costs in the two statements, which illustrate different business expense structures.

Target profit in terms of contribution margin is a financial planning concept that involves determining the level of sales needed to achieve a specific profit target based on the contribution margin. The contribution margin is the difference between total sales revenue and variable costs and is expressed as a percentage of sales. It is calculated as follows:First of all, determining the contribution margin ratio as follows:The calculation of targeted saled for Cover to cover company is as follows:First of all, determining the contribution margin ratio as follows:The calculation of targeted saled for Cover to cover company is as follows:The correct Option is Option A. It is clear that Biblo Files company has a higher contribution ratio, therefore, after deducting the variable expenses more of the sales is available to cover the fixed expenses and reach the desired profit.Hence, in order to summarize, the final answers are as follows:$ 574,000$ 260,500Option A is the correct answer.

Answered: Sales Contribution Margin Income…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Target Profit

Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.

1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
$fill in the blank 76bbeef61075022_1

2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
$fill in the blank 76bbeef61075022_2

3. What would explain the difference between your answers for (1) and (2)?

a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.

b. Cover-to-Cover Company’s contribution margin ratio is lower, meaning that it’s more efficient in its operations.

c. The companies have goals that are not in the relevant range.

d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.

Answers: a, b, c, d

### Contribution Margin Income Statement for Educational Purposes

#### Contribution Margin Income Statement
**For the Year Ended December 31, 20Y8**

- **Sales:** $424,000

- **Variable Costs:**
- Manufacturing Expense: $254,400
- Selling Expense: $21,200
- Administrative Expense: $63,600
- **Total Variable Costs:** ($339,200)

- **Contribution Margin:** $84,800

- **Fixed Costs:**
- Manufacturing Expense: $5,000
- Selling Expense: $4,000
- Administrative Expense: $12,200
- **Total Fixed Costs:** ($21,200)

- **Operating Income:** $63,600

---

### Income Statement - Biblio Files Company
#### Contribution Margin Income Statement
**For the Year Ended December 31, 20Y8**

- **Sales:** $424,000

- **Variable Costs:**
- Manufacturing Expense: $169,600
- Selling Expense: $16,960
- Administrative Expense: $67,840
- **Total Variable Costs:** ($254,400)

- **Contribution Margin:** $169,600

- **Fixed Costs:**
- Manufacturing Expense: $88,000
- Selling Expense: $8,000
- Administrative Expense: $10,000
- **Total Fixed Costs:** ($106,000)

- **Operating Income:** $63,600

**Explanation:**

Both income statements provide a breakdown of the financial performance for the year ended December 31, 20Y8. Each statement shows sales, subtracts variable costs to determine the contribution margin, subtracts fixed costs, and calculates the operating income. There are differences in cost allocations between variable and fixed costs in the two statements, which illustrate different business expense structures.

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Target Profit
Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer
questions (1)-(3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.
1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
$574,000 ✓
2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
$260,500 X
3. What would explain the difference between your answers for (1) and (2)?
a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.
b. Cover-to-Cover Company's contribution margin ratio is lower, meaning that it's more efficient in its operations.
c. The companies have goals that are not in the relevant range.
d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.
a

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