Question

ABC Company produces a product with a variable cost of $3.00 per unit and a selling price of $5.00 per unit. The company's fixed costs are $30,000. If ABC Company wants to earn a profit of $20,000, how much sales revenue must the company earn?

Answer 1

Selling price per unit = $5

Variable cost per unit = $3

Fixed costs = $30,000

Contribution margin per unit = Selling price per unit-Variable cost per unit

= 5-3

= $2

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 2/5

= 40%

Sales revenue to earn target profit= (Fixed cost + target Profit)/ Contribution margin ratio

= (30,000+20,000)/40%

= $125,000

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!!!