Question

In order to produce a target profit of $22,000, narchie's dollar sales must total:_____.

Answer 1

In order to produce a target profit of $22,000, narchie's dollar sales must total $1,055,000.

In management accounting, a target profit is a profit that a company expects to make from its operations.

The sales of a target profit are the total sales in quantity or dollars that a company must make in order to achieve its target profit.

The sales in dollars of a target profit is calculated as:

$Sales of a target profit= (Target profit + Fixed cost) / Contribution margin ratio$

The contribution margin ratio is computed as follows:

$CMR = (P - VC) / P$

Where P is the unit price and VC is the variable cost per unit.

Narchie sells a single product for $50.

Variable costs are 60% of the selling price.

Thus, the contribution margin ratio for this firm is:

$CMR = ( 50 - 0.6 ( 50)) / 50 = 0.4$

If the fixed cost is $400,000, in order to produce a target profit of $22,000, Narchie's dollar sales must total:

$Sales of a target profit = ( 400,000 + 22,0000) / 0.4$

Sales of a target profit = $1,055,000

Hence, the answer is $1,055,000.

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