Question

Rothe company manufactures and sells a single product that it sells for $200 per unit and has a contribution margin ratio of 25%. the company's fixed costs are $43,000. if rothe desires a monthly target operating profit equal to 20% of sales, sales will have to be (rounded):

Answer 1

Selling price=200 per unit
CM ratio =0.25
Fixed expenses=43000
target profit=0.2
Dollar sales to attain target profit=X

X=(0.2X+43000)÷0.25
Cross multiplication
0.25X=0.2X+43000
Solve for X
0.25X-0.2X=43000
0.05X=43000
X=43000/0.05
X=860000

Unit sales=Dollar sales÷selling price
Unit sales=860,000÷200
Unit sales=4,300 units. ...answer