ICANManagement InformationAbsorption and Marginal Costing2025

Abuja Furniture Works Limited has a contribution to sales (C/S) ratio of 40% and fixed costs of ₦9,600,000 per annum. The company wishes to achieve a target profit of ₦2,400,000 before tax. Ignoring Companies Income Tax Act (CITA) considerations, what is the required sales revenue?

A₦24,000,000
B₦30,000,000CORRECT
C₦36,000,000
D₦48,000,000
AI
Toaster Teacher
Why the answer is B, and why the others tempt you.
Required sales revenue = (Fixed costs + Target profit) ÷ C/S ratio = (₦9,600,000 + ₦2,400,000) ÷ 0.40 = ₦12,000,000 ÷ 0.40 = ₦30,000,000. The C/S ratio of 40% means that 40 kobo of every naira of sales contributes to covering fixed costs and profit.
Want this in Pidgin, Yoruba, Igbo or Hausa? Sign up free →

Practice more Management Information questions

ICAN Management Information has thousands more questions like this — with Worked answers on every one.

Start practicing free →See all Management Information questions