Eastwick produces and sells three products. Last month's results are as follows:
$\begin{array}{llr}
&\text { P1 } &\text { P2 } &\text { P3 } \
\text { Revenues } &\$100,000&\$200,000&\$200,000\
\text {Variable costs } &40,000&140,000&80,000
\end{array}$

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Fixed costs total $200,000. What sales volume would generate an operating profit of $150,000? (Assume the current product mix.)
A) $650,000.
B) $610,000.
C) $729,167.
D) $850,000.

Question

Eastwick produces and sells three products. Last month's results are as follows:
$\begin{array}{llr}
  &\text { P1 } &\text { P2 } &\text { P3 } \
 \text { Revenues } &\$100,000&\$200,000&\$200,000\
 \text {Variable costs  } &40,000&140,000&80,000
\end{array}$
 
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Fixed costs total $200,000. What sales volume would generate an operating profit of $150,000? (Assume the current product mix.)
A) $650,000.
B) $610,000.
C) $729,167.
D) $850,000.

Quizplus · Accepted Answer

To find the sales volume that generates an operating profit of $150,000, first calculate the contribution margin: Total Revenues ($500,000) - Total Variable Costs ($260,000) = $240,000. The contribution margin ratio is $240,000 / $500,000 = 0.48. To achieve a profit of $150,000, the required contribution margin is Fixed Costs ($200,000) + Desired Profit ($150,000) = $350,000. Therefore, the required sales volume is $350,000 / 0.48 = $729,167.

Eastwick Produces and Sells Three Products - Fixed Costs Total $200,000

Eastwick Produces and Sells Three Products -
Fixed Costs Total $200,000