Question

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs 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 unit sales to earn the target pre-tax net income.
Multiple Choice
4,444.
7,500.
6,650.

Answer 1

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:

$\frac{Sales}{Price per unit} = \frac{4,200,000}{450} = 93333.33 units$

Next we find the contribution margin per unit.

$Contribution margin per unit = Selling Price - Variable Cost$

$Contribution margin per unit = 450 - 270$

Contribution Margin per unit is $180.

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:

$Targeted sales in units = \frac{New contribution margin}{Contribution per unit}$

$Targeted sales in units = \frac{1,925,000}{180} = 10,694.44$

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.

Answer 2

Answer:

Hi your question lacks the number of units sold hence i will give you the total sales to earn the pre-tax net income

$4812500 ( total sales to earn the pre-tax net income )

Explanation:

selling price of a single product = $450

variable cost = $270

contribution margin = selling price - variable cost

                                 = 450 - 270 = $180

contribution margin ratio = contribution margin / selling price

                                          = 180 / 450 = 0.4 = 40%

Annual fixed cost = $800000

Annual pre income tax = $1125000

Therefore the required contribution margin will be = annual fixed cost + annual pre income tax

= 800000 + 1125000

= $1925000

hence to get the sales to earn pre tax net income will be

required contribution margin / contribution margin ratio

= 1925000 / 0.4  

= $4812500 ( total sales to earn the pre-tax net income )