In: Accounting
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.)
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 |