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Ironwood Inc. has a variable cost ratio of 60% and a fixed cost of $90,000. What...

Ironwood Inc. has a variable cost ratio of 60% and a fixed cost of $90,000. What sales revenue is needed to generate a $120,000 profit?

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Answer #1

Calculation of sales revenue:

Contribution margin ratio= 100- variable cost ratio= 100-60= 40%

Sales revenue to earn $120000 profit= (Fixed cost+ target profit)/ contribution margin ratio

                                                    =( 90000+120000)/0.40= $525000

Therefore sales revenue is $525000

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