Week 5, LO 6 Demo - many units must be sold to achieve this...

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Week 5 Week 5 Skill Building Demonstration Problem 6 Determine the level of sales needed to achieve a desired target profit . Learning Objective 6 The Equation Approach Sales = Variable Expenses + Fixed Expenses + Profits The Contribution Margin Approach Unit sales to attain = (Fixed Expenses + Target Profit) the target profit Unit Contribution Margin Dollar Sales to attain = (Fixed Expenses + Target Profit) Target profit Contribution Margin Ratio Definitions Sportsplus is a sporting goods manufacturer that specializes in manufacturing indoor soccer balls. The Sales Director has set a target profit for the upcoming quarter. The target profit was determined to be $24,000. Fixed expenses throughout the quarter are estimated to be $30,000 and variable expenses are $2 per ball. The selling price of each ball is $10. In order to achieve the target profit, what must total sales be in dollars and how
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Unformatted text preview: many units must be sold to achieve this goal? Required: Compute the amount of sales in dollars and in units using the Equation Approach and the Contribution Margin Approach. Problem Equation Approach Sales = Variable Expenses + Fixed Expenses + Profits $10Q = $2Q + $30,000 + $24,000 $8Q = $54,000 Q = 6,750 units Total sales = 6,750 * $10 = $67,50 The Contribution Margin Approach Solution Unit sales to attain = (Fixed Expenses + Target Profit) the target profit Unit Contribution Margin Q = ($30,000 + $24,000) ($10-$2) Q = $54,000 $8 Q = 6,750 units The Contribution Margin Approach Sales to attain = (Fixed Expenses + Target Profit) Target profit Contribution Margin Ratio Sales = ($30,000 + $24,000) ($8/$10) Sales = ($54,000) .80 Sales = $67,500...
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Week 5, LO 6 Demo - many units must be sold to achieve this...

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