Question

Regan runs her own hot dog stand on the U of A campus. The monthly cost of the cart rental and business permit is $200. Regan​'s contribution margin per unit is $2.00 and contribution margin ratio is 50​%. 1. How many hot dogs does Regan need to sell each month to earn a target profit of $ 900 a​ month? 2. How much sales revenue does Regan need to generate each month to break even each month to earn a target profit of $ 900 a​ month?

Answer 1

1. 550 units of hot dogs

2. $2200

Step-by-step explanation:

1. Computation of Number of hot dogs need to sell each month to earn a target profit of $900 is shown below:-

Monthly fixed cost = $200 (Cart rental and business permit)

Sale price per unit = Contribution margin per unit ÷ Contribution margin ratio

= $2 ÷ 50%

= $4

Variable cost per unit = $2 × (4 × 50%)

Number of units to be sold = Fixed cost + Target profit ÷ Contribution margin

= $200 + $900 ÷ 2

= 550 units of hot dogs

2. Calculation of sales revenue to earn a target profit of $900 :

Break even sales revenue = Fixed cost ÷ Contribution margin ratio

= $200 ÷ 50%

= $400

Sales revenue to be generated = Fixed cost + Target profit ÷ Contribution margin ratio

= $200 + $900 ÷ 50%

= $2,200