Summersville Production Company had the following projected information for the current year: $$\begin{array} { l l r }
\text { Selling price per unit } & \$ 150 \
\text { Variable cost per unit } & \$ 90 \
\text { Total fixed costs } & \$ 300,000
\end{array}$$
What level of sales dollars is needed to obtain a target before-tax profit of $75,000?
A)$375,000
B)$625,000
C)$750,000
D)$937,500

Question

Summersville Production Company had the following projected information for the current year: $$\begin{array} { l l r } 
\text { Selling price per unit } & \$  150 \
\text { Variable cost per unit } & \$  90 \
\text { Total fixed costs } & \$ 300,000
\end{array}$$
What level of sales dollars is needed to obtain a target before-tax profit of $75,000?
A)$375,000
B)$625,000
C)$750,000
D)$937,500

Quizplus · Accepted Answer

To find the sales dollars needed to achieve a target before-tax profit, we use the formula: $$ \text{Required Sales} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{Contribution Margin Ratio}} $$ where the Contribution Margin Ratio (CM Ratio) is calculated as: $$ \text{CM Ratio} = \frac{\text{Selling Price per Unit} - \text{Variable Cost per Unit}}{\text{Selling Price per Unit}} $$ Substituting the given values: $$ \text{CM Ratio} = \frac{150 - 90}{150} = \frac{60}{150} = 0.4 $$ Therefore, the required sales to achieve a $75,000 profit are: $$ \text{Required Sales} = \frac{300,000 + 75,000}{0.4} = \frac{375,000}{0.4} = \$937,500. $$

Summersville Production Company Had the Following Projected Information for the Current