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Mottle Inc. fixed costs are expected to be $70,000 and variable costs are expected to be...

Mottle Inc. fixed costs are expected to be $70,000 and variable costs are expected to be $20 per product. Sales price is $40 per product and targeted net income is $300,000.

  1. Determine the required sales in units to break even.
  2. Determine the required sales in dollars to break even.
  3. Determine the required sales in units to achieve targeted net income of $300,000.

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Answer #1

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

= $40 - $20

= $20

a. Breakeven point in units = Fixed cost / Contribution margin per unit

= $70,000 / $20

= 3,500 units

b. Breakeven point in dollars = (Fixed cost / Contribution margin per unit) X Selling price per unit

= ($70,000 / $20) X $40

= $140,000

c. Target sales =  [(Fixed cost + Target profit) / Contribution margin per unit] X Selling price per unit

= [($70,000 + $300,000) / $20] X $40

= $740,000

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