Question

Archie's Steak House sells an average meal for $50. Variable costs are $30, and the company has fixed costs that amount to $400,000 per year. Current sales total 16,000 meals. In order to produce a target before tax profit of $22,000, Archie's dollar sales must total:

Answer 1

A	Fixed Cost	$     4,00,000.00
B	Expected annual profits	$         22,000.00
C=A+B	Total contribution required	$     4,22,000.00
D	Unit contribution (50-30)	$                 20.00
E=C/D	No. of units to earn target profit	$         21,100.00
F=E x $50 per unit	Amount of Sale dollars	$   10,55,000.00

Contribution margin= Sales price - Variable cost per unit (50-30=20)

Answer---In order to produce a target before tax profit of $22,000, Archie's dollar sales must total $1055000