The Herald Company manufactures and sells a single product that sells for £50 per unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses are £25,000. If Herald desires a monthly target net operating income equal to 20% of sales pounds, sales in units will have to be (rounded)

Question

Quizplus · Accepted Answer

First, we need to calculate the target net operating income:
£50 × Sales in units × 0.30 (contribution margin ratio) - £25,000 (fixed expenses) = 0.20 (20% of sales pounds) × £50 × Sales in units

Simplifying this equation, we get:
£15 × Sales in units - £25,000 = £10 × Sales in units
£5 × Sales in units = £25,000
Sales in units = 5,000 units.

The Herald Company Manufactures and Sells a Single Product That