Question

Nombre Company management predicts \(390,000 of variable costs, \)430,000 of fixed costs, and a pretax income of \(155,000 in the next period. Management also predicts that the contribution margin per unit will be \)9. Use this information to compute the (1) total expected dollar sales for next period and (2) number of units expected to be sold next period.

Short answer

1. Estimated dollar sales:$975,000.
2. Estimated sales in units:65,000 units.

Step-by-step solution

Definition of Contribution Margin

The sales revenue remaining for covering the fixed cost incurred by the business entity is known as the contribution margin. It is determined by the difference between the sales revenue and variable cost.

Expected dollar sales for the next period

Calculation of contribution margin

Particular	Amount $
Pre-tax income	$155,000
Add: fixed cost	430,000
Contribution margin	$585,000
Add: Variable cost	390,000
Estimated dollar sales	$975,000

Expected unit sales for the next period

$\begin{array}{rcl}\mathrm{Expected}\mathrm{sales}& =& \frac{\mathrm{Contribution}\mathrm{margin}}{\mathrm{Contribution}\mathrm{margin}\mathrm{per}\mathrm{unit}}\\ & =& \frac{\$585,000}{\$9}\\ & =& 65,000\mathrm{units}\end{array}$