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Tema [17]
3 years ago
8

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed co

sts are $800,000. Current sales volume is $4,200,000. Flannigan Company management targets an annual pre-tax income of $1,125,000. Compute the dollar sales to earn the target pre-tax net income.
Business
1 answer:
ehidna [41]3 years ago
3 0

Answer:

$4,812,500 Dollar sales to achieve EBT of 1,125,000

Explanation:

The goal would be to calcualte the break even formula adding in the dividend the target profit:

\frac{FixedCost+Target Profit}{Contribution Margin Ratio} = $Sales to Target Profit

Where:

\frac{Contribution Margin}{Sales Revenue} = $Contribution Margin Ratio

Where:

$Contribution Margin - Fixed Cost = Net Income

So first  step

$450 Sales - $270 Variable Cost = $180 Contribution Margin

Second:

180/450 = 40% CM ratio

Finally:

\frac{FixedCost+Target Profit}{Contribution Margin Ratio} = $Sales to Target Profit

\frac{800,000+1,125,000}{0.40} = $4,812,500

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