Question

M and M, Inc. produces a product that has a variable cost of $3.40 per unit. The company's fixed costs are $41,600. The product is sold for $6 per unit and the company desires to earn a target profit of $13,000. What is the amount of sales that will be necessary to earn the desired profit? (Do not round intermediate calculations.) A. $305,200 B. $96,000 C. $150,600 D. $126,000

Answer 1

D. $126,000

Step-by-step explanation:

We will calculate the amount of sales to earn desired profit as;

= (Desired profit + Fixed costs) / Contribution margin %

Given that;

Desired profit = $13,000

Fixed costs = $41,600

We can calculate contribution margin % using the formula;

= (Sales price per unit - Variable cost per unit) / Sales price per unit

= ($6 - $3.4) / $6

= $2.6 / $6

= 0.4333333

= 43.33333% rounded off

We can now calculate ;

Amount of sales = (Desired profit + Fixed costs) / Contribution margin %

= ($13,000 + $41,600) / 43.33333%

= $54,600 / 43.33333%

= $126,000

Therefore, the amount of sales that will be necessary to earn the desired profit is $126,000