Question

If the contribution margin ratio is 0.60, targeted operating income is $55,000, and fixed costs are $90,000, then sales volume in dollars is ________.

		$150,000
		$91,667
		$362,500
		$241,667

Blistre Company operates on a contribution margin of 40% and currently has fixed costs of $530,000. Next year, sales are projected to be $3,200,000. An advertising campaign is being evaluated that costs an additional $110,000. How much would sales have to increase to justify the additional expenditure?

		$1,280,000
		$165,000
		$275,000
		$530,000

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.

		The graph method
		A sensitivity analysis
		The degree of operating leverage
		Sales mix

Answer 1

1
Targeted operating income	55000
Add: Fixed costs	90000
Contribution margin	145000
Sales volume in dollars	241667	=145000/0.6
Option D $241,667 is correct
2
Advertising expense	110000
Divide by contribution margin ratio	40%
Sales to increase	275000
Option C $275,000 is correct

3

A sensitivity analysis is the process of varying key estimates to identify those estimates that are the most critical to a decision.

A sensitivity analysis involves changing key estimates to identify the effect of changes on various elements.

Option B A sensitivity analysis is correct