[sg235]

sorry if this sounds too simple of a question that I should know it but I cannot seem to get to the answer of $200k additional sales per Wiley.

Koby Co. has sales of $200,000 with variable expenses of $150,000, fixed expenses of $60,000, and an operating loss of $10,000. By how much would Koby have to increase its sales in order to achieve an operating income of 10% of sales?

My approach (Fixed Costs + desired profit) / Cont. Margin Ratio so I get to 60k FC+ 20k Desired profit/ (200k-150k/200k) .25 = 320k in needed sales

So, how are they coming up with the additional 200k in sales?

[watermelon]

The way I solved this is pretty straightforward:
Sales – VC (75% of Sales) – FC = Operating income (10% of Sales).
If we assume to increase sales by X:
X + 200,000 – 0.75x – 150,000 – 60,000 = 0.1 (200,000 + X)
X=200,000

[sg235]

I guess that is as straightforward as it comes. Thanks-appreciate the quick response back!!

[ayusdream]

the quickest method is this:

in terms of ratio
Sales = 200
VC = 150
—-
CM = 50 -> CM ratio = 50/200 = 0.25
FC ratio = fc / sales
Profit ratio = profit / sales = 0.10

that means Fixed cost ratio (fixed cost / sales) must be = 0.25 – 0.10 = 0.15

fixed cost is giving, 60,000, in simple algebra to solve for sales = 60,000/ 0.15 = 400,000 new sales is 400,000 then the difference is 200k

[watermelon]

@Sg235 good luck on your BEC tomorrow!!!

[Author]

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