Contribution margin to sales ratio is 84% for the ABC Co. and the breakeven point in sales is Rs. 150,000. The company desires a target net income of Rs. 42,000.

Required:
What will be value of Fixed Cost?
What will be target contribution margin?
What would be the amount of actual sales?

Solution:-

here its idea solution.....please comment am right or wrong....

Part 1)
BEP Sales = Fixed/Contribution margin ratio
150000 = Fixed /84%
150000 = Fixed /0.84
Fixed = 150000 x 0.84
Fixed = 126000

Part 2)
Target contribution = Target profit + Fixed cost
Target contribution = 42000 + 126000
Target contribution = 168000

Part 3)
Contribution margin ration = Contribution margin / sales
0.84 = 168000/sales
Sales = 168000/0.84
Sales = 200000

Sales 200000
Less: Variable (3200)
Contribution margin 168000
Less: Fixed Cost (126000)
Profit 42000 

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