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

So the amount of sales needed will be $144000

Step-by-step 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 =
`(contribution\ margin)/(sales)=(3.1)/(8)=0.3875`

Fixed costs = $37200

Target profit= $18600

Required Sales amount to earn the desired profit =
`(Fixed costs + Target net income)/(Contribution Margin Ratio)`

`=(37200+18600)/(0.3875)=$144000`