Question

Big Chill, Inc. sells portable dehumidifier units at $180. Unit variable costs are $112. Fixed costs are $4,175,000. Management has set a profit objective of 16.6% return on sales. Calculate the sales volume in dollars that will provide a 16.6% return on sales. Round your answer to the nearest dollar.

Answer 1

Big Chill, Inc. requires a sales volume of approximately $19,711,517 to achieve a 16.6% return on sales, based on the provided fixed and variable costs and the selling price of the dehumidifier units.

Step-by-step explanation:

To calculate the sales volume in dollars that will provide a 16.6% return on sales for Big Chill, Inc., we need to first establish the desired profit in dollars based on the return on sales percentage. The profit can be calculated with the formula: Profit = Return on Sales Percentage × Sales. Here, Return on Sales (ROS) is 16.6%.

To find the sales volume that yields this profit, we use the formula: Sales = (Fixed Costs + Profit) / (1 - Variable Cost per Unit / Price per Unit).

First, we calculate the desired profit in dollars: Profit = ROS × Sales => Profit = 0.166 × Sales. Then, the equation is rearranged to make Sales the subject

Therefore, Sales = Fixed Costs / (1 - Variable Cost per Unit/Price per Unit - ROS).

Now we can plug in the values: Sales = $4,175,000 / (1 - $112/$180 - 0.166).

Sales = $4,175,000 / (1 - 0.6222 - 0.166) => Sales = $4,175,000 / 0.2118.

Thus, Sales = $19,711,516.91.

So, Big Chill, Inc. needs a sales volume of approximately $19,711,517 to achieve a 16.6% return on sales.