Jazz Products has the following information available for the month of March: Sales (4,000 units)$40,000 Variable costs18,000 Fixed costs 5,000 Net income$17,000The company's manager is considering several options to increase net income. By what amount do sales dollars need to increase in order for net income to increase to $25,000?Question 3Select one:a.$14,545b.$25,000c.$ 3,000d.$18,820
Question
Jazz Products has the following information available for the month of March: Sales (4,000 units)17,000The company's manager is considering several options to increase net income. By what amount do sales dollars need to increase in order for net income to increase to 14,545b. 3,000d.$18,820
Solution
To solve this problem, we first need to understand the contribution margin ratio. The contribution margin ratio is calculated by subtracting variable costs from sales and dividing the result by sales.
In this case, the contribution margin ratio is (18,000) / $40,000 = 0.55 or 55%.
The contribution margin ratio tells us that for each dollar of sales, $0.55 is contributed towards covering fixed costs and then generating profit.
Next, we need to calculate the increase in net income desired, which is 17,000 = $8,000.
Finally, we divide the increase in net income by the contribution margin ratio to find the necessary increase in sales. So, 14,545.
Therefore, Jazz Products needs to increase sales by 25,000.
So, the answer is a. $14,545.
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