Question

Bosco Company sells boxes of cookies and has total fixed costs of $200,000 per month. Variable costs are $8 per box, selling price is $10. The company desires to make a profit of $100,000 per month. a. What is number of boxes that most be sold to break even each month? b. What is the contribution margin ratio? c. What is the $ amount of monthly sales needed in order to make the desired monthly profit

Answer #1

a)

Break-even point in units = Fixed expenses / Contribution margin per unit |

Break-even point in units = $200,000 / ($10-$8) |

Break-even point in units = 100,000 Units |

b)

Contribution margin ratio = Contribution margin / selling price |

Contribution margin ratio = ($10-$8) / $10 |

Contribution margin ratio = 20% |

c)

Target sales = (Fixed expenses + target profit) / contribution margin ratio |

Target sales = ($200,000+$100,000) / 20% |

Target sales = $1,500,000 |

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