Question

Fanning Company incurs annual fixed costs of $104,220. Variable costs for Fanning’s product are $26.40 per unit, and the sales price is $40.00 per unit. Fanning desires to earn an annual profit of $60,000.

Required
Determine the sales volume in dollars and units required to earn the desired profit.

Answer 1

Step-by-step explanation:

Contribution margin per unit = 40-26.40 = 13.60

Contribution margin ratio = 13.6/40 = 34%

a) Sales in dollars to earn desired profit = (Fixed cost+Desired profit)/Contribution margin ratio = (104220+60000)/.34 = 483000

b) Sales in volume in units = 483000/40 = 12075 Units