In: Accounting
The owners have set a target profit of $25,000 per month ($300,000 per year) in order from them to devote themselves full-time to JW Sports Supplies. Evaluate each of the following factors, separately (assume 1500 units at 100 each, y=60x +40000):
a. What price must the company set to achieve a profit of $25,000?
b. What must the variable cost per unit be to achieve a profit of $25,000?
c. How many units must it sell to achieve a profit of $25,000? d. What must total monthly fixed costs be to achieve a profit of $25,000?
a)
y = 60x + 40,000
Selling price per unit = ?
Variable cost per unit = $60
Fixed costs = $40,000
Number of units sold = 1,500
Let the Selling price per unit be $K
Target profit = $25,000
Profit = Sales - Total variable costs - Total fixed costs
25,000 = 1,500K - 1,500 x 60 - 40,000
25,000 = 1,500K - 90,000 - 40,000
1,500K = 155,000
K = $133.33
Selling price per unit = $133.33
b)
Let the variable cost per unit be $K
Profit = Sales - Total variable costs - Total fixed costs
25,000 = 1,500 x 100 - 1,500K - 40,000
1,500K =110,000 - 25,000
K = 85,000/1,500
= $56.67
Variable cost per unit = $56.67
c)
Selling price per unit = $100
Variable cost per unit = $60
Contribution margin per unit = Selling price per unit – Variable cost per unit
= 100 - 60
= $40
Units to be sold to get a target profit = (Fixed cost + Target profit)/Contribution margin per unit
= (40,000 + 25,000)/40
= 65,000/40
= 1,625
d)
Let the Total monthly fixed costs be to achieve a profit of $25,000 be $K
Profit = Sales - Total variable costs - Total fixed costs
25,000 = 1,500 x 100 - 1,500 x 60 - Total fixed costs
25,000 = 150,000 - 90,000 - Total fixed costs
Total fixed costs = $35,000