Yoda and his Jedi Knights, have just received a project to produce a new Pink Lightsaber....

Yoda and his Jedi Knights, have just received a project to produce a new Pink Lightsaber. The variable cost per unit is at $750, the sales price would be set at twice the VC/unit, and the fixed costs are $1,000,000. The Storm Troopers have agreed that they will put up the funds if the project is likely to have an operating income of $500,000 or more. What amount of sales would be needed in order to meet this profit goal?

Expert Solution

Target sales to achieve such target income is $ 15,00,000 or more.

Working:

Step-1:Calculation of contribution margin ratio

Contribution margin ratio	=	Contribution margin	/	Sales
	=	$ 750	/	$ 1,500
	=	50%

Working:

Sales	=	Variable cost *2
	=	750*2
	=	$ 1,500

Contribution margin	=	Sales price per unit	-	Variable cost per unit
	=	$ 1,500	-	$ 750
	=	$ 750

Step-2:Calculation of target sales

Target sales	=	Target contribution margin / Contribution margin ratio
	=	$ 15,00,000	/	50%
	=	$ 30,00,000

Working:

Fixed cost		$ 10,00,000
Target profit		$ 5,00,000

Target contribution margin		$ 15,00,000

jeff jeffy answered 1 year ago

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