A firm had total revenue of $1,500,000 last year. Total variable costs were $750,000, and fixed...
A firm had total revenue of $1,500,000 last year. Total variable costs were $750,000, and fixed costs were $250,000.
The firm sells three different products, with a sales mix of 2:6:5.
Assuming the firm's cost structure and sales mix stays the same this year, how much total revenue will the firm need if it wants to earn a profit of $600,000 this year?
| a. |
$1,700,000 |
|
| b. |
$500,000 |
|
| c. |
Cannot be determined from this information. |
|
| d. |
$1,200,000 |
Homework Answers
Answer:
Total revenue= $1,700,000
Working notes for the above answer is as under
|
Sales |
1,500,000 |
|
Less: Variable cost |
-750,000 |
|
Contribution margin |
750,000 |
Total Contribution margin ratio
=750,000/1,500,000
=50%
total revenue will the firm need if it wants to earn a profit of $600,000
=Fixed cost+ desired profit/ Total Contribution margin ratio
=(250,000+600,000) /50%
=850,000 /50%
=1,700,000
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