Week 5, LO 6 Demo

# 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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