Answer: The company's current sales is 9,333 units.
It has to sell a total of 10,695 units in order to achieve a target pre tax income of $1,125,000.
First we calculate the number of units sold at the current sales level.
We compute this as:
Next we find the contribution margin per unit.
Contribution Margin per unit is <u>$180.</u>
Flannigan Company's current per-tax income is calculated as :
Sales 4200000
less:Variable costs @ $270 for 9333.33 units -2520000
Contribution 1680000
less:Fixed Costs -800000
Pre tax income 880000
With this information, we can calculate the Contribution Margin required if the pre tax income should be $1,125,000. We work backwards in order to find the Contribution Margin from Pre-tax income.
Targeted Pre Tax income $1,125,000
Add: Fixed Costs $ 800,000
Contribution Margin $1,925,000
Since we know the per unit contribution, we can calculate the number of units to be sold as:
Since products can't be sold in parts, any decimal value after a whole number will be rounded up. Hence the targeted sales will be 10,695 units.