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A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. The company desires to earn an operating profit of \)12,000 per month.

10. Calculate the required sales in units to earn the target profit using the equation method.

11. Calculate the required sales in units to earn the target profit using the contribution margin method.

12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.

13. Calculate the required sales in units to break even using the contribution margin method.

Short Answer

Expert verified
  1. Units sold = 300
  2. Units sold = 300
  3. Required sales in dollars =$26,000
  4. Units sold = 300

Step by step solution

01

Calculation of the required sales in units to earn the target profit using the equation method

Target profit = Net sales revenue – Variable costs – Fixed costs

$12,000 = ($100 x Units sold) – ($40 x Units sold) - $6,000

$12,000 - $6,000 =$60 x Units sold

Units sold = 300 Units

02

Calculation of the required sales in units to earn the target profit using the contribution margin method.

Contribution Margin Per Unit = Sale Price-Variable Cost

=$100-$40

=$60

Required sales in units = Fixed costs + Target profit/ Contribution margin per unit

=($6,000+$12,000)/$60

=300 Units

03

Calculation of the required sales in dollars to earn the target profit using the contribution margin ratio method

Contribution margin ratio = Contribution Margin Per Unit/ Sale price per unit

=$60/$100

=60%

Required sales in dollars =Fixed costs + Target profit/ Contribution margin ratio

=($6,000+$12,000)/60%

=$30,000

04

Calculation of the required sales in units to break even using the contribution margin method. 

Required sales in units =Fixed costs + Target profit/Contribution margin per unit

=($6,000+$12,000)/$60

=300 units

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Most popular questions from this chapter

What are the three ways contribution margin can be ex

Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?

Determining mixed costs—the high-low method

The manager of Trusty Car Inspection reviewed the monthly operating costs for the past year. The costs ranged from \(4,300 for 1,300 inspections to \)3,900 for 900 inspections.

Requirements

1. Use the high-low method to calculate the variable cost per inspection.

2. Calculate the total fixed costs.

3. Write the equation and calculate the operating costs for 1,000 inspections.

4. Draw a graph illustrating the total cost under this plan. Label the axes, and show the costs at 900, 1,000, and 1,300 inspections.

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.

S20-16 Calculating breakeven point for two products

Using the Wild Waters Swim Park information presented, do the following tasks.

Requirements

1. Compute the weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

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