Fill in the Blank QuestionFill in the blank question.A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in dollars to achieve the desired target income is $.
Question
Fill in the Blank QuestionFill in the blank question.A company produces a product with variable costs of 5.00 per unit. The company has fixed costs of 10,000. The sales level in dollars to achieve the desired target income is $.
Solution
To solve this problem, we first need to calculate the contribution margin per unit, which is the selling price per unit minus the variable cost per unit.
Step 1: Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit = 2.50 = $2.50
Next, we calculate the contribution margin ratio, which is the contribution margin per unit divided by the selling price per unit.
Step 2: Contribution Margin Ratio = Contribution Margin per Unit / Selling Price per Unit = 5.00 = 0.5
Then, we calculate the break-even point in units, which is the fixed costs divided by the contribution margin per unit.
Step 3: Break-Even Point in Units = Fixed Costs / Contribution Margin per Unit = 2.50 = 1,200 units
To find the sales level in dollars to achieve the desired target income, we add the desired target income to the fixed costs and divide by the contribution margin ratio.
Step 4: Sales Level in Dollars = (Fixed Costs + Desired Target Income) / Contribution Margin Ratio = (10,000) / 0.5 = $26,000
So, the sales level in dollars to achieve the desired target income is $26,000.
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