Ramirez Corp. sells a product for $10 per unit. The fixed costs are $240,000 and the unit variable costs are 60% of the selling price. What sales would be necessary in order for Flom Corp. to realize a profit of 10% of sales?

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Quizplus · Accepted Answer

To achieve a profit of 10% of sales, the total sales must cover both the fixed costs and the variable costs, plus the desired profit. The unit variable cost is 60% of the selling price, which is $6 ($10 * 60%). The desired profit is 10% of sales, so the equation to find the necessary sales (S) is: Fixed Costs + Variable Costs (60% of S) + Desired Profit (10% of S) = Total Sales. Simplifying, we get $240,000 + 0.6S + 0.1S = S. Solving for S gives us $240,000 = 0.3S, which results in S = $800,000.