Framing House, Inc. produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame.

The sales dollars required to make a before-tax profit (πB) of $20,000 for Framing House would be:

Question

The sales dollars required to make a before-tax profit (πB) of $20,000 for Framing House would be:

Quizplus · Accepted Answer

To calculate the sales dollars required to make a before-tax profit of $20,000, we first determine the total costs, including the desired profit. The total costs include fixed costs ($130,000) plus the desired profit ($20,000), totaling $150,000. The contribution margin per unit is the selling price ($25) minus the variable cost per unit ($17), which equals $8. To cover the total costs and desired profit, we divide the total needed ($150,000) by the contribution margin per unit ($8), resulting in 18,750 units needed to be sold. Multiplying the units by the selling price ($25) gives us the sales dollars required: 18,750 units * $25/unit = $468,750.