M and m, inc. produces a product that has a variable cost of $3.70 per unit. the company's fixed costs are $49,500. the product is sold for $7 per unit and the company desires to earn a target profit of $16,500. what is the amount of sales that will be necessary to earn the desired profit?

Question

Business

Brylee Pennington

22 August, 15:41

M and m, inc. produces a product that has a variable cost of $3.70 per unit. the company's fixed costs are $49,500. the product is sold for $7 per unit and the company desires to earn a target profit of $16,500. what is the amount of sales that will be necessary to earn the desired profit?

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Ana Kelly · Answer 1

Calculation of the amount of sales to earn the desired profit:

The amount of sales to earn the desired profit can be calculated using the following formula:

Amount of Sales = (Desired Profit + Fixed Costs) / Contribution Margin %

We are given:

Desired Profit = $16,500

Fixed Costs = $49,500

We can calculate Contribution Margin % using the following formula:

Contribution Margin % = (Sales price - variable cost per unit) / Sales Price = (7-3.70) / 7 = 47.1429% (Rounded off)

Now we can calculate:

Amount of Sales = (Desired Profit + Fixed Costs) / Contribution Margin %

= (16500+49500) / 47.1429%

= $140,000

Hence, the amount of sales that will be necessary to earn the desired profit is $140,000