Question

Exercise 3-3A Contribution margin ratio LO 3-1 Vernon Company incurs annual fixed costs of $115,560. Variable costs for Vernon's product are $18.60 per unit, and the sales price is $30.00 per unit. Vernon desires to earn an annual profit of $60,000. 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

Fixed cost = $115,560

Variable cost per unit = $18.60

Selling price per unit = $30

Target profit = $60,000

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

= 30 - 18.60

= $11.40

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

= 11.40/30

= 38%

part 1.

Sales in dollar needed to earn target profit = (Fixed cost + Target profit)/Contribution margin ratio

= (115,560 + 60,000)/38%

= 175,560/38%

= $462,000

Part 2.

Sales units needed to earn target profit = (Fixed cost + Target profit)/Contribution margin per unit

= (115,560 + 60,000)/11.40

= 175,560/11.40

= 15,400 units

Sales in dollar	$462,000
Sales volume in unit	15,400 units

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