For Rivera Company, variable costs are 70% of sales, and fixed costs are $210,000. Management’s net income goal is $60,000. Compute the required sales needed to achieve management’s target net income of $60,000. (Use the mathematical equation approach.)

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phamdiep1810 phamdiep1810 · Answer 1 · 2020-02-25T05:19:53+01:00

Answer:

the required sales needed to achieve management’s target net income of $60,000: $900,000

Explanation:

The required sales needed to achieve management’s target profit figure are calculated by using following formula:

The required sales = (Total fixed cost + Targeted profit) / Contribution margin ratio.

For Rivera Company, variable costs are 70% of sales. The contribution margin ratio is calculated by using following formula:

Contribution margin ratio = (Sales - Total Variable cost)/Sales = (Sales - 70% of sales)/Sales = 30%

The contribution margin ratio = 30%

The required sales = ($210,000 + $60,000)/30% = $900,000