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Hi
formula for Sales volume to acheive Target profit = FC+Req profit/unit contribution
There is a questions which gives target Contribution of $3.75m. The answer divides $3.75m with contribution margin of $3358.6 (in millions) and multiplies it to total sales revenue (given) $8484(in millions) to get $9473.
Why the fixes cost was not added to target contribution margin? and why was it multiplied by total revenue?
Really appreciate your help.
Thank you
It would help if you gave the full question because it is difficult to follow exactly what is being asked!!
The contribution and revenue will both increase/decrease together.
Suppose the sales revenue is 200 and the contribution is 50.
Then the revenue will always be 4 times the contribution (200/50).So if they require a contribution of 60, then the revenue will have to be 4 x 60 = 240.
Fixed overheads are irrelevant.
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