Raven Inc. sells a single product for $45. Variable costs include $26 for each unit plus a $10 selling expense per unit. Fixed costs are $200,000 per month.a. What is the contribution margin percentage?b. What is the breakeven sales revenue?c. What sales revenue is needed to achieve a $175,000 per month profit?
What will be an ideal response?
a. 20% = ($45 - $26 - $10)/$45
b. $1,000,000 = $200,000/20%
c. $1,875,000 = ($200,000 + $175,000)/20%
Contribution margin percentage = Unit contribution margin/Selling price. Break-even sales = Fixed costs/Contribution margin percentage. Target sales = (Fixed costs + Target Profit)/Contribution margin percentage.
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