KA) M Inbox??Newtí P Americ O gMAV M Inbox -Ch 17 https//newconnect.mheducation.

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KA) M Inbox??Newtí P Americ O gMAV M Inbox -Ch 17 https//newconnect.mheducation.com/flow/connecthtml a Conne ? Ch 18 Ch 18-1 ework Exercise 18-12 Computing sales to achieve target income LO C2 Blanchard Company manufactures a single product that sells for $100 per unit and whose total variable costs are $76 per unit The company's annual fixed costs are $338,400 Management targots an annual pretax income of 9600,000 Assume that fixed costs remain at $338,400. (1) Compute the unit sales to earn the target income Units to achieve targer (2) Compute the dollar sales to earn the target income Delilars to achieve target

Explanation / Answer

SOLUTION

(1) Contribution margin per unit = Sales price - Variable cost

= $100 - $76 = $24

Requires sales (in units) = (Fixed costs + Targer profit) / Contribution margin per unit

= ($338,400 + $600,000) / $24

= $938,400 / $24

= 39,100 units

(2) Contribution margin ratio = Contribution margin per unit / Sales price * 100

= $24 / $100 * 100 = 24%

Requires sales (in dollars) = (Fixed costs + Targer profit) / Contribution margin ratio

= ($338,400 + $600,000) / 24%

= $938,400 / 24%

= $3,910,000

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