Question

Ng Corporation produces and sells only one product; its selling price is $80 and its variable cost is $60 per unit. The company’s monthly fixed expense is $23,000.

Required:

1. Using the equation method, determine the unit sales that are required to earn a target profit before tax of $6,000.

2. Using the formula method, determine for the dollar sales that are required to earn a target profit before tax of $7,000.

3. Using the formula method, calculate the number of units that need to be sold to earn an after-tax income of $9,000, assuming a tax rate of 25%.

Answer 1

Answer :

1) unit sales = (Target Profit + fixed cost) ÷ contribution per unit

= (6,000 + 23,000) ÷ (80 - 60)

= 29,000 ÷ 20

= 1,450 units

2) Dollar sales = (Target Profit + Fixed cost) ÷ contribution margin ratio

= ($7,000 + $23,000) ÷ 25%

= $7,500

Note : control Margin Ratio = ( contribution ÷ sales) × 100

= (20 ÷ 80) × 100 = 25%

3) Number of units = (Net profit before tax + fixed cost) ÷ contribution margin per unit

= {12,000 + 23,000 } ÷ 20

= 35,000 ÷ 20

= 1,750 units

Note : Net profit before tax = 9,000 × 100/75 = 12,000