Choice "D" is correct. Sales of $80,000 provide a 15% return on sales. The required sales volume may be computed algebraically as follows assuming sales
S − 0.6S − $20,000.15S |
S − 0.6S − 0.15S$20,000 |
0.25S$20,000 |
S$20,000 ÷ 0.25 |
S$80,000 |
Choice "c" is incorrect. The required level of sales is not computed as the ratio of fixed costs divided by the variable cost percentage ($20,000 ÷ 60%).Choice "a" is incorrect. Sales of $50,000 is breakeven computed as fixed costs divided by the contribution margin ratio ($20,000 ÷ 0.4). Breakeven provides no return on sales.Choice "b" is incorrect. The required level of sales is not computed as the ratio of fixed costs divided by the desired profitability ($20,000 ÷ 15%).
