Q3TI - Horngren'S Financial And Managerial Accounting

Question

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. The company desires to earn an operating profit of \)12,000 per month. 

10. Calculate the required sales in units to earn the target profit using the equation method. 

11. Calculate the required sales in units to earn the target profit using the contribution margin method. 

12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method. 

13. Calculate the required sales in units to break even using the contribution margin method.

Step-by-Step Solution

Answer

1. Units sold = 300
2. Units sold = 300
3. Required sales in dollars =$26,000
4. Units sold = 300

Calculation of the required sales in units to earn the target profit using the equation method

Target profit = Net sales revenue – Variable costs – Fixed costs

$12,000 = ($100 x Units sold) – ($40 x Units sold) - $6,000

$12,000 - $6,000 =$60 x Units sold

Units sold = 300 Units

Calculation of the required sales in units to earn the target profit using the contribution margin method.

Contribution Margin Per Unit = Sale Price-Variable Cost

=$100-$40

=$60

 

Required sales in units = Fixed costs + Target profit/ Contribution margin per unit 

=($6,000+$12,000)/$60

=300 Units

Calculation of the required sales in dollars to earn the target profit using the contribution margin ratio method

Contribution margin ratio = Contribution Margin Per Unit/ Sale price per unit

=$60/$100

=60%

 

Required sales in dollars =Fixed costs + Target profit/ Contribution margin ratio

=($6,000+$12,000)/60%

=$30,000

Calculation of the required sales in units to break even using the contribution margin method.

Required sales in units =Fixed costs + Target profit/Contribution margin per unit

=($6,000+$12,000)/$60

=300 units