The Puppet Co. has the following unit and mix data: $\begin{array}{lll}&\text { Do }&\text { Dah }&\text { Total }\
\text { Unit sales price } & \$ 5.00 & \$ 4.00 \
\text { Unit contribution margin } & 0.75 & 0.6 \
\text { Sales mix }(\$) & 80 \% & 20 \%\
\text { Fixed costs }&&&\$99,000\
\text { Target profit }&&&24,750
\end{array}$ How many units in total must be sold to earn the target profit?
A) 687,500
B) 165,000
C) 112,500
D) 171,875

Question

The Puppet Co. has the following unit and mix data: $\begin{array}{lll}&\text { Do }&\text { Dah }&\text { Total }\
\text { Unit sales price } & \$ 5.00 & \$ 4.00 \
\text { Unit contribution margin } & 0.75 & 0.6 \
\text { Sales mix }(\$) & 80 \% & 20 \%\
\text { Fixed costs }&&&\$99,000\
\text { Target profit }&&&24,750
\end{array}$  How many units in total must be sold to earn the target profit?
A) 687,500
B) 165,000
C) 112,500
D) 171,875

Quizplus · Accepted Answer

To find the total units needed to earn the target profit, we first calculate the weighted average contribution margin (WACM). The sales mix is given in dollar values, so we adjust the unit contribution margins to reflect this mix. The adjusted contribution margins are $0.75 \times 0.8 = 0.6$ for Do and $0.6 \times 0.2 = 0.12$ for Dah. The total WACM is $0.6 + 0.12 = 0.72$. The formula to find the total units needed is $(\text{Fixed Costs} + \text{Target Profit}) / \text{WACM}$. Substituting the given values, we get $(99,000 + 24,750) / 0.72 = 171,875$ units.

The Puppet Co How Many Units in Total Must Be Sold to Earn