I have this problem to solve:

for Noname Company, variable costs are 60% of sales, and fixed costs are $195,000. Management's net income goal is $75,000.
Compute the required sales in dollars needed to achieve management's net income goal.
Use the contribution margin approach.)

I found this formula in my book:

Required Sales = Variable Costs + Fixed Costs + Target Net Income

So I wrote it as:

X=X*60% + 195000 + 75000
X=X*60% + 270000
?
?

But I don't know what to do next. I am the Mathless Wonder. Can anyone show me how to find the required sales in dollars? I have scoured my book and do not see anything exactly like this, where the variable costs are not given.

Thank you!

bancgirl99

x=.60x + 270,000
x is understood to be 1x. Subtract .60x from both sides:
1x - .60x = 270,000
Combine like terms:
.40x = 270,000
Divide both sides by .40:
x = 675,000

There's another way to look at it. The 270,000 has to equal contribution margin. (Think about it.) If variable costs are 60% of sales, then contribution margin has to be 40% of sales.

So sales x 40% = 270,000.
Or working backwards: 270,000/40% = Sales
If you multiply to go forwards, you divide to go backwards.
And no algebra. (The math is the same actually, but you don't have to approach it as algebra or know how to solve for variables.)