Question

Exercise 18-12 Computing sales to achieve target income LO C2

Blanchard Company manufactures a single product that sells for $240 per unit and whose total variable costs are $180 per unit. The company’s annual fixed costs are $954,000. Management targets an annual pretax income of $1,500,000. Assume that fixed costs remain at $954,000.

	(1) Compute the unit sales to earn the target income. Choose Numerator: / Choose Denominator: = Units to Achieve Target / = Units to achieve target (2) Compute the dollar sales to earn the target income. Choose Numerator: / Choose Denominator: = Dollars to Achieve Target / = Dollars to achieve target

Answer 1

(1) Contribution Margin Per Unit = Selling Price Per Unit -Variable Cost Per Unit

= $ 240 - $ 180

= $ 60

Required Contribution = Fixed Cost + Required Profit

= $ 954,000 + $ 1,500,000

= $ 2,454,000

Hence, Units sales required to earn the target income=

Choose Numerator	/	Choose Denominator	=	Units to Achieve Target
Required Contribution	/	Required Contribution Margin Per Unit	=	Units to achieve target
$ 2,454,000	/	$ 60	=	40,900 Units

(2)

Contribution Margin Ratio = Contribution Margin Per Unit / Selling Price Per Unit *100

= $ 60 / $ 240 *100

Required Contribution = Fixed Cost + Required Profit

= $ 954,000 + $ 1,500,000

= $ 2,454,000

Hence, Dollar sales required to earn the target income=

Choose Numerator	/	Choose Denominator	=	Units to Achieve Target
Required Contribution	/	Required Contribution Margin Per Unit	=	Dollarss to achieve target
$ 2,454,000	/	25%	=	$ 9,816,000