Final answer:
To meet a target net income of $1,700 with given costs and prices, we calculate the contribution margin, add fixed costs to the target net income, and divide by the contribution margin per unit. Option b is correct: ($1,700 + $2,300) ÷ $50 results in 80 units needed, and at $125 per unit, this equals $10,000 in sales dollars required.
Step-by-step explanation:
To calculate the sales dollars required to meet a target net income, we can use the contribution margin approach. The contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit. In this case, the selling price is $125, and the variable cost per unit is $75, giving us a contribution margin of $50 per unit ($125 - $75).
To cover the fixed costs and meet the target net income, we must also account for the total amount needed, which is the sum of the target net income and the fixed costs. Here, the target net income is $1,700 and the fixed costs are $2,300 per month, adding up to $4,000 ($1,700 + $2,300).
To find the required sales dollars, we divide the total amount needed by the contribution margin per unit. The correct formula would be ($1,700 + $2,300) ÷ $50, which can also be expressed as $4,000 ÷ $50. Performing the division gives us the required sales in units. To get the required sales in dollars, we then multiply by the selling price per unit.
The correct answer, which includes the required sales dollars, is option b: ($1,700 + $2,300) ÷ $50 = 80 units needed to meet the target net income. To determine the sales dollars, we then multiply the units needed by the sales price per unit: 80 units × $125 = $10,000.