Question

In: Accounting

The owners have set a target profit of $25,000 per month ($300,000 per year) in order...

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?

Solutions

Expert Solution

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


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