Question

Exercise 6-7 Target Profit Analysis (L06-6) Lin Corporation has a single product whose selling price is $134 per unit and whose variable expense is $67 per unit. The company's monthly fixed expense is $31,750. Required: 1. Calculate the unit sales needed to attain a target profit of $8,450. (Do not round intermediate calculations.) 2. Calculate the dollar sales needed to attain a target profit of $9,700. (Round your intermediate calculations to the nearest whole number.) 1. Units sales to attain target profit 2. Dollar sales to attain target profit units

Answer 1

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Answer:
Contribution margin per unit           = Selling price per unit (-) Variable cost per Unit           =     $ 134 (-) $ 67           =     $ 67
Contribution margin ratio           = Contribution margin per unit / Selling price per unit           =     $ 67 / $ 134           =     50%
1)
Unit Sales needed to attain target profit              = ( Fixed Cost + Taget Profit ) / Contribution margin per unit              =   ( $ 31,750 + $ 8,450 ) / $ 67              =   $ 40,200 / $ 67              =    600 Units
Unit Sales needed to attain target profit   =   600 Units
2)
Dollar Sales needed to attain target profit              = ( Fixed Cost + Taget Profit ) / Contribution margin ratio              =   ( $ 31,750 + $ 9,700 ) / 50%              =   $ 41,450 / 50%              =   $ 82,900
Dollar Sales needed to attain target profit =   $ 82,900
6-8)
Contribution margin per unit           = Selling price per unit (-) Variable cost per Unit           =     $ 25 (-) $ 15           =     $ 10
Break Even Sales          = (Fixed Cost / Contribution margin per unit ) x Selling price          = ( $ 8,000 / $ 10 ) x $ 25          =    $ 20,000
Margin of safety in dollars                 = Total sales (-) Break Even Sales                 =   ( 950 x $ 25 ) (-) $ 20,000                 =    $ 23,750 (-) $ 20,000	$ 3,750
Margin of safety inpercentage                 = Margin of safety in dollars / Total Sales                 =    $ 3,750 / $ 23,750	15.79%