Question

Assignment Exercise 18–3: Target Operating Income

Acme Medical Supply Company desires a target operating income amount of $100,000, with assumption inputs as follows:

Desired (target) operating income amount = $100,000

Unit price for sales = $80

Variable cost per unit = $60

Total fixed cost = $60,000

Compute the required revenue to achieve the target operating income and compute a contribution income statement to prove the totals.

Answer 1

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Answer:

Target operating income amount - $100,000 Unit price for sales - $80 Variable cost per unit = $60 Total fixed cost = $60,000 Target contribution amount =Target operating income amount + Total fixed cost Target contribution amount = 100000+60000 Target contribution amount = 160000 Contribution Margin per unit - Unit price for sales - Variable cost per unit Contribution Margin per unit = 80-60 Contribution Margin per unit = 20 Contribution Margin Ratio - Contribution Margin per unit / Unit price for sales Contribution Margin Ratio - 20/80 Contribution Margin Ratio -25% Required unit to be sold to achieve target income - Target contribution amount/Contribution Margin per unit Required unit to be sold to achieve target income - 160000/20 Required unit to be sold to achieve target income = 8000 units Required revenue in dollar) = Target contribution amount/Contribution Margin ratio Required revenue (in dollar) -160000/25% Required revenue (in dollar) - $ 640000 Computation of a contribution income statement to prove the totals is shown below:

Contribution Income Statement 640.000 480,000 Sales Revenue Less : Variable cost Contribution Less: Fixed Cost Operating income 160,000 60,000 100,000