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6 February, 03:33

The University Golf Shop desires to make $10,000 in pretax profits. If the contribution margin ratio (CMR) is 50% and the fixed costs are $110,000, what is the required level of sales

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  1. 6 February, 03:41
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    The required level of sales is $240,000.

    Explanation:

    Contribution margin is the profit margin which is available for the fixed cost of the business as the variable cost already been deducted.

    Contribution Margin ratio = 50%

    Fixed Cost = $110,000

    Desired profit = $10,000

    We can calculate the Target sales required to earn desired Profit of $$10,000 by using following formula

    Target Sales = (Fixed Cost + Desired Profit) / Contribution Margin ratio

    Target Sales = ($110,000 + $10,000) / 50%

    Target Sales = $120,00 / 50%

    Target Sales = $120,00 / 0.5

    Target Sales = $240,000

    It means that the University Golf shop requires $240,000 to earn a pretax profit of $10,000.
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Home » Business » The University Golf Shop desires to make $10,000 in pretax profits. If the contribution margin ratio (CMR) is 50% and the fixed costs are $110,000, what is the required level of sales
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