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 dollar sales to earn the target pre-tax net income.

Answer 1

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

Step-by-step explanation:

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

`(FixedCost+Target Profit)/(Contribution Margin Ratio) = $Sales to Target Profit`

Where:

`(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:

`(FixedCost+Target Profit)/(Contribution Margin Ratio) = $Sales to Target Profit`

`(800,000+1,125,000)/(0.40) = $4,812,500`