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Use the following information to answer the questions below: Next year, Rad Shirt Company expects to...

Use the following information to answer the questions below:
Next year, Rad Shirt Company expects to sell 32,000 shirts. Rad is budgeting the following operating results for next year:
Sales $800,000
Variable expenses 288,000
Contribution margin 512,000
Fixed expenses 192,000
Net operating income $320,000

Rad is considering increasing its advertising by $48,000 next year. By how much would sales have to increase in order for Rad to still generate a $320,000 net operating income?

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Answer #1

In order for Rad to still generate a $320,000 net operating income sales has to increase by $75,000

Working

Sales $      800,000.00
Variable cost $      288,000.00
Contribution margin $      512,000.00
Contribution margin ratio (512000/800000) 64%
Fixed cost plus desired profit (192000+48000+320000) $      560,000.00
Sales to attain desired profit (560000/64%) $      875,000.00
Sales earlier $      800,000.00
Increase in sales (875000-800000) $        75,000.00
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