Question

B. Finch Company incurs annual fixed costs of $86,940. Variable costs for Finch's product are $26.40 per unit, and the sales price is $40.00 per unit. Finch desires to earn an annual profit of $63,000. 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.) 5431 ok Sales in dollars Sales volume in units

Answer 1

In order to compute the amount of sales that must be achieved in order to obtain desired profit. The following may be used:
In units= (Fixed cost+ desired profit)/contribution per unit

In value= (Fixed cost +desired profit)/ Profit volume ratio

In units= ($86,940+$63,000)/13.60= 11025 units

In value= ($86,940+$63,000)/34%= $441,000

To achieve profit of $63,000, Finch company has to sold 11025 units or of value $44,100.

Working note:
1. Calculation of contribution per unit
Contribution per unit= Sales per unit- variable cost per unit
                                      =$40 - $26.40
                                       =$13.60 per unit

2. Calculation of profit volume ratio
P/V ratio= (Contribution/sales)*100
                = ($13.60/$40) * 100
                = 34%