Question

# Bascatt Company currently distributes a product that sells for \$24.00 per unit and has a contribution...

Bascatt Company currently distributes a product that sells for \$24.00 per unit and has a contribution margin ratio of 30%. The company’s fixed expenses are \$118,800 per year. The company plans to sell 18,100 units this year.

By using a new supplier, the company believes it can reduce its variable expenses by \$2.40 per unit. If the company decides use the new supplier, what dollar sales is required to attain a target profit of \$46,800?

Contribution margin ratio=Contribution margin/Sales

Hence Contribution margin is=(24*30%)

=\$7.2 per unit

Contribution margin=Sales-Variable cost

Hence current Variable cost=(24-7.2)=\$16.8

New variable cost =16.8-2.4 =\$14.4 per unit

Hence Contribution margin will be =24-14.4

=\$9.6 per unit

Hence Contribution margin ratio=(9.6/24) =0.4

Target contribution margin=Fixed cost+Target profits

=118,800+46,800

=\$165600

Hence target sales=Target contribution margin/contribution margin ratio

=\$165600/0.4

=\$414,000

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