A contractor has $100,000 fixed costs and a contribution margin ratio of 25%. If he wants a $50,000 profit, what revenue is required?
a.$400,000
b.$200,000
c.$150,000
d.$600,000
Explanation
Required revenue = (fixed costs + target profit) / contribution margin ratio = ($100,000 + $50,000) / 0.25 = $150,000 / 0.25 = $600,000.
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