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30 June, 00:18

If the contribution margin ratio is 60%, target operating income is $50,000, and the sales revenue needed to achieve the target operating income is $800,000, what are total fixed expenses?

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  1. 30 June, 02:50
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    The correct answer is $430,000.

    Explanation:

    According to the scenario, the given data are as follows:

    Contribution margin ratio = 60%

    Operating income = $50,000

    sales revenue = $800,000

    So, we can calculate the total fixed expenses by using following formula:

    Total fixed expenses = Contribution Margin - Operating income

    Where, Contribution margin = Contribution margin ratio * sales

    Contribution margin =.60 * $800,000 = $480,000

    So, by putting the value in the formula, we get,

    Total fixed expenses = $480,000 - $50,000

    = $430,000
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