Question

The contribution margin ratio is 40% for the Southern Company. The break-even amount of revenue is $420,000. If Southern's target pre-tax profit is $70,000, what would the revenue be?

Answer 1

Contribution margin ratio =40%

Break even sales = $420,000

Break even sales = fixed cost / Contribution margin ratio

420,000 = Fixed cost/ 40%

Fixed cost = $168,000

Target profit = $70,000

Sales to earn target profit = ( Fixed cost + Target profit)/Contribution margin ratio

= (168,000+70,000)/40%

= 238,000/40%

= $595,000

If Southern's target pre-tax profit is $70,000,the revenue would be = $595,000.

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