Question

Bascatt Company currently distributes a product that sells for $22.00 per unit and has a contribution margin ratio of 30%. The company’s fixed expenses are $105,600 per year. The company plans to sell 17,400 units this year.

By using a new supplier, the company believes it can reduce its variable expenses by $2.20 per unit. If the company decides use the new supplier, what dollar sales is required to attain a target profit of $39,600?

Multiple Choice

• $264,000

• $484,000

• $145,200

• $363,000

Answer 1

Answer- The dollar sales is required to attain a target profit of $39600 = $363000.

Explanation- Dollar sales to attain target profit = (Fixed costs+ Target profit)/ Contribution margin ratio

= ($105600+$39600)/40%

= $145200/40%

= $363000

Where- Contribution margin ratio = (Contribution margin per unit/Selling price per unit)*100

= ($8.80 per unit /$22.00 per unit)*100

= 40%

Where-Contribution margin per unit = Selling price per unit- Variable expenses per unit

= $22.00 per unit - $13.20 per unit

= $8.80 per unit

Where- Variable expenses per unit = {$22.00 per unit* (1-.30) - $2.20 per unit}

= $15.40 per unit - $2.20 per unit

= $13.20 per unit