Kanmore produces and sells three products.Last month's results are as follows: Fixed costs total $200,000.What sales volume would generate an operating profit of $150,000? (Assume the current prodcut mix)
A)$650,000
B)$610,000
C)$729,167
D)$850,000

Question

Quizplus · Accepted Answer

To calculate the sales volume, we need to use the following formula:
Operating Profit = Sales Revenue - Variable Costs - Fixed Costs
$150,000 = Sales Revenue - (Variable Costs/Unit x Units Sold) - $200,000
We do not have enough information to calculate the unit variable costs or the sales mix, so we cannot use the contribution margin ratio method to solve for the sales volume. Instead, we can calculate the total sales revenue required to generate an operating profit of $150,000 for each option and then choose the one that matches.
Option A: Total Sales Revenue = $650,000 + 40%($650,000) + 20%($650,000) = $936,000
Option B: Total Sales Revenue = $610,000 + 50%($610,000) + 10%($610,000) = $902,000
Option C: Total Sales Revenue = $729,167 + 30%($729,167) + 25%($729,167) = $1,018,333
Option D: Total Sales Revenue = $850,000 + 35%($850,000) + 15%($850,000) = $1,122,500
Therefore, the option that matches the required operating profit of $150,000 is C.

Kanmore Produces and Sells Three Products