Question

Watson Company has monthly fixed costs of $92,000 and a 40% contribution margin ratio. If the company has set a target monthly income of $15,900, what dollar amount of sales must be made to produce the target income?

Multiple Choice

• $269,750

• $107,900

• $230,000

• $39,750

• $190,250
  

  Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are:
  

  	M			N			O
  Unit sales price	$	13		$	10		$	12
  Unit variable costs		9			8			10

  
  Total fixed costs are $342,000. The selling price per composite unit for the current sales mix (rounded to the nearest cent) is:

  Multiple Choice

• $35.00.

• $ 11.67.

• $38.00.

• $73.00.

• $49.00.

Answer 1

Answer 1)

Calculation of dollar amount of sales to achieve target Income

Dollar amount of sales to achieve target Income = (Total fixed cost + Target Income)/ Contribution margin ratio

                                                                                                 = ($ 92,000 + $ 15,900)/ 40%

                                                                                                 = $ 269,750

Therefore the dollar amount of sales to achieve target income is $ 269,750.

Answer 2)

Calculation of selling price per composite unit for current sales mix

Selling price per composite unit = (Unit Sales of product M X sales mix of product M) + (Unit Sales of product N X sales mix of product N) + (Unit Sales of product O X sales mix of product O)

                                                                = ($ 13 X 3) + ($ 10 X 1) + ($ 12 X 2)

                                                                 = $ 39 + $ 10 + $ 24

                                                                = $ 73.00

Therefore selling price per composire unit for current sales mix is $ 73.00