Question

Grayson Corporation produces and sells a single product. Data concerning that product appear below:

Selling price per unit	$230.00
Variable cost per unit	$92.00
Fixed cost per month	$621,000

Required:

a. Assume the company's monthly target profit is $69,000. Determine the unit sales to attain that target profit.
b. Assume the company's monthly target profit is $41,400. Determine the dollar sales to attain that target profit.

	Per Unit	Percent of Sales
Selling price per unit	$230.00	100%
Variable cost per unit	92.00	40%
Contribution margin per unit and CM ratio	$138.00	60%

Answer:

a. Unit sales to attain target profit = (Target profit + Fixed costs) ÷ Unit CM

b. Dollar sales to attain target profit = (Target profit + Fixed costs) ÷ CM ratio

Answer 1

Answer:

a.

Determine unit sales to attain the target profit of $69,000 as follows:

Unit sales to attain the target income = (Fixed costs + Target Income) / Unit Contribution margin

= ($621,000 + $69,000) / $138

= 5,000 units

Therefore, 5,000 units needs to be sold to attain the target income of $5,000 units.

b.

Determine dollar sales to attain the target profit of $41,400 as follows:

Dollars sales to attain the target income = (Fixed costs + Target Income) / Contribution margin ratio

= ($621,000 + $41,400) / 60%

= $1,104,000

Therefore, to attain the target income of $41,400, Company needs to made sales of $1,104,000.