Question

Legrand Company produces hand cream in plastic jars. Each jar sells for $3.40. The variable cost for each jar (materials, labor, and overhead) totals $2.55. The total fixed cost is $58,140. During the most recent year, 81,600 jars were sold.

	Required:
1.	What is the break-even point in units for Legrand? What is the margin of safety in units for the most recent year?
2.	Prepare an income statement for Legrand’s most recent year.
3.	How many units must be sold for Legrand to earn a profit of $25,500?
4.	What is the level of sales dollars needed for Legrand to earn operating income of 10% of sales?

Please help me solve only questions #4. I have looked for references everywhere and cannot figure it out.

Answer 1

Break even point in units = Fixed costs/(Selling price per unit - variable costs per unit)
=(58140)/(3.40-2.55) = 68,400 units
Margin of Safety in units = Sales units - break even units
=81600-68400
=13,200 units
Income Statement
Sales	277,440
Less: Variable Expenses	208,080
Contribution Margin	69,360
Less: Fixed Expenses	58,140
Operating Income	11,220
Units = (Desired Profit + Fixed costs)/Contribution Margin per unit
=(25500+58140)/0.85
=98,400 units
4.Sales Dollars required = Fixed costs/(1-Variable cost% - Desired Profit %)
=58140/(1-75%-10%)
=$387,600