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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?

Respuesta :

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






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