Target Sales for Desired Profit Using Contribution Margin

Steps:

• Calculate current contribution: 40% of $40,000 =$16,000.
• Calculate current profit: $16,000 -$1,400 = $14,600.
• Target new profit: $14,600 +$4,000 = $18,600.
• Target contribution needed: $18,600 +$1,400 = $20,000; new sales =$20,000 / 0.4 = $50,000.

Why D is correct:

• Contribution margin formula shows target sales = (fixed costs + target profit) / contribution ratio, yielding $50,000 exactly.

Why the others are wrong:

• A: Underestimates sales needed, resulting in profit below $18,600.
• B: Insufficient increase in contribution to cover $4,000 profit rise.
• C: Falls short of required contribution by $2,000, missing full profit target.

Final answer: D