Question

A recent income statement of Dragonwood Corporation reported the following data: Units sold 8,000 Sales revenue $9,600,000 Variable costs 6,000,000 Fixed costs 2,600,000 If the company desired to earn a target profit of $1,270,000, it would have to sell:

Answer 1

To earn a target profit of $1,270,000, Dragonwood Corporation would need to sell 5160 units.

Step-by-step explanation:

To calculate the number of units the company needs to sell to earn a target profit of $1,270,000, we need to determine the contribution margin per unit. The contribution margin per unit is calculated by subtracting the variable costs per unit from the selling price per unit. In this case, the contribution margin per unit is ($9,600,000 - $6,000,000) ÷ 8,000 = $750.

To achieve a target profit of $1,270,000, the company needs to cover its fixed costs of $2,600,000 and earn an additional $1,270,000. The additional contribution margin needed can be calculated as follows: $2,600,000 + $1,270,000 = $3,870,000.

The number of units the company needs to sell can be determined by dividing the additional contribution margin needed by the contribution margin per unit: $3,870,000 ÷ $750 = 5160 units. Therefore, the company would need to sell 5160 units to earn a target profit of $1,270,000.