Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units.
In order to produce a target profit of $22,000, Narchie's dollar sales must total:

Question

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per unit, which is the selling price minus the variable costs. Variable costs are 60% of the selling price, so they are $30 per unit (0.6 x $50). Therefore, the contribution margin per unit is $20 ($50 - $30).

Next, we can calculate the contribution margin ratio, which is the contribution margin per unit divided by the selling price. It is 0.4 ($20/$50), or 40%.

To reach a target profit of $22,000, we need to add this amount to the total fixed costs and divide by the contribution margin ratio:

(Target profit + Fixed costs) / Contribution margin ratio = Dollar sales

($22,000 + $400,000) / 0.4 = $1,055,000

Therefore, Narchie's dollar sales must total $1,055,000 to reach a target profit of $22,000.

Narchie Sells a Single Product for $50