Question

M and M, Inc. produces a product that has a variable cost of $4.90 per unit. The company's fixed costs are $37,200. The product is sold for $8 per unit and the company desires to earn a target profit of $18,600. What is the amount of sales that will be necessary to earn the desired profit? (Do not round intermediate calculations.)

Answer 1

Answer:

So the amount of sales needed will be $144000

Explanation:

We have given selling price per unit =$8

Variable cost per unit = $4.90

Contribution margin per unit = 8-4.90=$3.1

Contribution margin Ratio = $\frac{contribution\ margin}{sales}=\frac{3.1}{8}=0.3875$

Fixed costs =  $37200

Target profit= $18600

Required Sales amount to earn the desired profit = $\frac{Fixed costs + Target net income}{Contribution Margin Ratio}$

$=\frac{37200+18600}{0.3875}= 144000$