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Bloom Company management predicts that it will incur fixed costs of $160,000 and earn pretax income of $164,000 in the next period. Its expected contribution margin ratio is 25%.Required: 1. Compute the amount of total dollar sales.2. Compute the amount of total variable costs.

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Answer:

  1. SALES IN DOLLAR $1,296,000
  2. VARIABLE COST IN DOLLAR $972,000

Explanation:

The process would be to use formulas of the variable costing method to solve for each term:

We are going to use the operating income formula

contribution margin - fixed cost = operating income

Replace with the know values:

contribution margin - 160,000 =  164,000

now solve for the unknow value

contribution = 164,000 + 160,000 = 324,000

Next step we use the contribution margin ratio formula to get the sales:

contribution margin/sales = contribution ratio

Replace with the know values:

324,000/sales = 0.25

now solve for the unknow value:

sales = 324,000/0.25 = 1,296,000

Lastly we use the contribution margin formula to solve for variable cost:

sales - variable cost = contribution margin

Replace with the know values:

1,296,000 - variable cost = 324,000

now solve for the unknow value:

variable cost= 1,296,000 - 324,000 = 972,000

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