Gena Manufacturing Company has a fixed cost of $225,000 for the production of tubes.Estimated sales are 150,000 units.A before tax profit of $125,000 is desired by the controller.If the tubes sell for $5 each,what unit contribution margin is required to attain the profit target?

Question

Quizplus · Accepted Answer

To attain the profit target of $125,000, the total contribution margin must be $350,000 ($125,000 + $225,000 fixed cost).

The contribution margin per unit can be calculated as follows:

Contribution Margin per unit = Selling price per unit - Variable cost per unit

We know the selling price per unit is $5. We need to find the variable cost per unit.

We can use the contribution margin ratio (CM ratio) to find the variable cost per unit:

CM Ratio = Contribution Margin / Selling Price

The CM ratio can be rearranged as:

Contribution Margin = CM Ratio * Selling Price

We know the CM ratio we need to achieve ($350,000 / $750,000 = 0.467 or 46.7%), and we know the selling price per unit is $5, so we can solve for the required contribution margin:

Contribution Margin = 0.467 * $5 = $2.335

Therefore, the unit contribution margin required to attain the profit target is $2.335, which is closest to choice B ($2.33).

Gena Manufacturing Company Has a Fixed Cost of $225,000 for the Production