Question

Rundle Company incurs annual fixed costs of $103,055. Variable costs for Rundle's product are $25.20 per unit, and the sales price is $40.00 per unit. Rundle desires to earn an annual profit of $64,000. Required Use the contribution margin ratio approach to determine the sales volume in dollars and units required to earn the desired profit. (Do not round intermediate calculations. Round your final answers to the nearest whole number.) Sales in dollars Sales volume in units

Answer 1

Contribution margin per unit

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

= $40.00 per unit - $25.20 per unit

= $14.80 per unit

Contribution margin ratio

Contribution margin ratio = [Contribution margin per unit / Selling price per unit] x 100

= [$14.80 / $40.00] x 100

= 37.00%

(a)-Break-even sales in dollars

Break-even sales in dollars = [Total fixed cost + Desired profits] / Contribution margin ratio

= [$103,055 + $64,000] / 0.37

= $167,055 / 0.37

= $451,500

(b)-Break-even sales volume in units

Break-even sales volume in units = Break-even sales in dollars / Selling price per unit

= $451,500 / $40.00 per unit

= 11,288 units