Question

I don't just need to know the answers but the method by which to work the problem. Any help is appreciated!

PKRK sells chairs for $120 each and expects variable product costs to be $90 per unit with total fixed costs of $171,000. (Base Case) a. Determine the break-even sales units for the company. (worth 1/2 pt) What level of sales dollars should the company expect if PKRK wants to earn an operating profit of $85,000? (worth 1/2 pt) b. Starting from the base case scenario, the sales manager is convinced that sales would increase from 6,800 to 7,900 units if the company simply replaces $60,000 of fixed costs which is paid to the sales rep with a sales commission of $12 per unit sold. Should the company make the change? Prove/justify your answer. (worth 2 pts) c. Starting from the base case scenario, If PKRK wants to realize $100,000 in operating profit, what must be the minimum sales price, per unit, if they produce and sell 6,000 units and there is no change in variable cost per unit? (round to the nearest $0.10) (worth 2pts) d.

Answer 1

sale price per unit - variable cost per unit 120 90 30 contribution per unit contribution margin ratio 25% |($30 / $120) at break even, a company is able to recover its fixed costs .e. fixed costs hence, total contribution total contribution $171,000 total contribution contribution per unit sales units $171,000 $30* sales units sales units $171,000 $30 sales units - 5,700 hence, break even sales units for company are 5,700 units in case the company wants to earn operating profit of $85,000, the total contribution should be equal to fixed cost+ desired operating profit hence, total contribution fixed cost desired operating profit total contribution total contribution- $171,000$85,000 $ 256,000 total sales required total contribution required/ contribution margin ratio total sales required-$256,000 / 25% total sales required1,024,000 hence, the expected dollars sales should be $1,024,000