Computation of fixed operating cost for achieving target profits.
Roney Rogers, a recent business school graduate, plans to open a wholesale dairy products firm. The business will be
Completely financed with equity. Rogers expects first year sales to total $5,500,000. He desires to earn a target pretax Profit of $1,000,000 during his first year of operation. Variable costs are 40% of sales.
How large can Rogers' fixed operating costs be if he is to meet his profit target?