Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What sales dollar level is needed to obtain a before-tax profit of $60,000 when the selling price is $6.00 per unit?

Question

Quizplus · Accepted Answer

To determine the sales dollar level needed to obtain a before-tax profit of $60,000, we can use the equation:

Profit = (Sales * Contribution Margin) - Fixed Expenses

Where:

Contribution Margin = Selling Price - Variable Expenses per unit
Variable Expenses per unit = 60% of Selling Price = 0.6 * $6.00 = $3.60

Substituting in the values we have:

$60,000 = (Sales * ($6.00 - $3.60)) - $30,000

Simplifying:

$60,000 = (Sales * $2.40) - $30,000
$90,000 = (Sales * $2.40)
Sales = $90,000 / $2.40
Sales = $375,000

Therefore, the sales dollar level needed to obtain a before-tax profit of $60,000 when the selling price is $6.00 per unit is $375,000. Since this is not an option, the closest answer is D) $360,000.

Nonesuch Company Sells Only One Product at a Regular Price