Answer: | |
Required Contribution margin = Fixed costs + Target Operating Income = $ 12,000 + $ 24,000 = $ 36,000 |
|
Contribution margin per basket = Required Contribution margin / Baskets Sold = $ 36,000 / 5,000 = $ 7.20 per unit |
|
1) | |
Raise selling price per basket
to = Variable Cost per basket + Contribution margin per basket = $ 15 + $ 7.20 = $ 22.20 per basket |
$ 22.20 |
2) | |
Reduce variable costs per unit
to = Selling Price (-) Contribution margin per basket = $ 25 (-) $ 7.20 = $ 17.80 |
$ 17.80 |
3) | |
Reduce fixed costs to = Baskets Sold x ( Selling Price (-) Variable Cost ) (-) Target Operating Income = 5,000 x ( $ 25 (-) $ 15 ) (-) $ 24,000 = $ 50,000 (-) $ 24,000 = $ 26,000 |
$ 26,000 |
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