An operation operates with a variable cost percentage of 72%. The owner wants to increase sales revenue by an amount necessary to provide for an additional operating income of $800 a month, or $9,600 a year. What is the additional increase in sales revenue required

The answer is $2,857.14    

Explanation:

Let us assume Sales be $500 per month  

                                                 Monthly    

Sales                                    $500    

Less: Variable Cost(72%)    $360    

Contribution(will be 28%)    $140    

Less: Fixed Cost(Assume)      0    

Operating Income                     $140    

If there should be an increase of $800 per month in the operating Income

Revised Operating Income$140 + $800 =$940  

Therefore Contribution is equal to $ 940  

If Contribution is $940 equal to 28%, then Sales be 100%  

$940 ÷ 28%    

$3,357.14    

Therefore additional increase in Sales revenue required per month

$3,357.14 - $500    

$2,857.14    

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