Question

In: Accounting

Vernon Company incurs annual fixed costs of $113,710. Variable costs for Vernon’s product are $25.20 per...

Vernon Company incurs annual fixed costs of $113,710. Variable costs for Vernon’s product are $25.20 per unit, and the sales price is $40.00 per unit. Vernon desires to earn an annual profit of $65,000.


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.)

Solutions

Expert Solution

Annual Fixed Cost 113710
Variable Cost 25.2
Selling Price 40
Targeted Profit 65000
Contribution per unit
    Selling Price- Variable Cost
           40-25.20
$            14.80 per unit
Contribition Ratio
      Contribution per unit/Selling Price
           =(40-25.20)/40
37.00%
To earn Targeted Profit, Sales Volume dollars
     = (Fixed Cost+Targeted Profit)/ Contribution Margin Ratio
          (113710+65000)/37%
$ 483,000.00
To earn Targeted Profit, Sales Volume(units)
     = (Fixed Cost+Targeted Profit)/ Contribution per unit
          (113710+65000)/14.80
=12075 units

ekkarill92 answered 1 year ago
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