Break-Even Point and Target Profit Measured in Sales Dollars (Single Product). Nellie Company has monthly fixed costs totaling $100,000 and variable costs of $20 per unit. Each unit of product is sold for $25 (these data are the same as the previous exercise):
Calculate the contribution margin ratio.
Find the break-even point in sales dollars.
What amount of sales dollars is required to earn a monthly profit of $60,000?
Contribution margin ratio = 20%
Contribution margin ratio = Contribution margin per unit / Sale per unit
Contribution margin per unit ($25 – $20) = $5
Sale price = $25
Hence, contribution margin ratio ($5 / $25) = 20%
Break-even point in sales dollars = $500000
Break-even point in sales dollars = Fixed costs * Sale price / Contribution margin per unit
Break-even point in sales dollars = $100000 * $25 / $5
Sales dollars is required to earn a monthly profit of $60,000 = $800000
Sale amount = (Fixed costs + Desired profit / Contribution margin per unit) * Sale price
Sale amount = ($100000 + $60000 / $5) * $25
Sale amount = ($160000 / $5) * $25
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