Question

Calculate:

45 Ex-3. Belford Company makes software for home computers. Each software disk sells for $50 and has a unit variable cost of $15. Fixed costs are $360,000. In this very competitive market the company's policy is to earn a profit of 30% on sales or a minimum dollar profit of $100,000 on each product. Required: 1. Compute the required sales level and corresponding dollar profit to satisfy the company's target profit percentage. 2. Compute the required sales level to satisfy the firm's minimum dollar profit.

Answer 1

Selling price per unit = $50

Variable cost per unit = $15

Fixed costs = $360,000

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

= 50-15

= $35

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

= 35/50

= 70%

1. Let the sales be $Y profit = 30% on sales

= Y x 30%

= 0.3Y

Profit = ( Sales x Contribution margin ratio) - Fixed costs

0.3Y = (Y x 70%) - 360,000

0.3Y = 0.7Y - 360,000

0.4Y = 360,000

Y = 360,000/0.4

= $900,000

Hence, sales = $900,000

Profit = 900,000 x 30%

= $270,000

2. Dollar sales to earn target profit = ( Fixed cost + Target profit )/ Contribution margin ratio

= (360,000+100,000)/70%

= 460,000/70%

= $657,143

Kindly comment if you need further assistance.

Thanks‼!