Chapter 5, Problem 16Q

To determine

Break-even Sales: It is the point of sales at which a company earns zero profit as cost incurred in production is equal to the total revenue.

Target Net Income: The income which is required to cover the overall cost of production is called as target net income. This income is needed by the company to achieve the overall goals and objectives. It is computed when fixed cost and variable cost are reduced from total sales.

Contribution Margin Ratio: The ratio which shows the relationship between contribution and sales is called as contribution margin ratio. It is computed as the difference between selling price and variable costs and expressed as a percentage of sales.

Formula to calculate required sales:

$\text{Required Sales}=\frac{\text{Fixed Cost}+\text{Target Net Income}}{\text{Contribution Margin Ratio}}$

To determine: The required sales in dollars.

Given:

• Fixed cost is $180,000.
• Target net income is $90,000.