Question

Wayhaven, Inc. has provided the following information regarding its costs. Units Cost Information Selling price Variable costs Fixed costs $50,000 Knowledge Check 01 If Wayhaven wants to earn a profit of $30,000, how many units should it sell? 25,000 units 30,000 units 35,000 units 40,000 units Knowledge Check 02 If Wayhaven wants to earn a target profit of $40,000, what is the target sales amount in dollars? Use the contribution margin ratio method. $225,000 $50,000 $150,000 6125 nnn

Answer 1

Answer: 1: 40,000 units

2: $225,000

Explanation

1.     Contribution margin in dollars = Total fixed costs + Target profit

= $50,000 + $30,000

= $ 80,000

  Contribution margin in units = Selling price - Variable costs

= 5 - 3

= $ 2 per unit

Units sell = Contribution margin in dollars /  Contribution margin in units

= $ 80,000 / 2

= 40,000 unis

2 .  Contribution margin ratio = Contribution margin in units / Selling price

= 2 / 5

= 40%

Target sales in dollars = (Total fixed costs + Target profit) / Contribution margin ratio

= ($50,000 + $40,000) / 40%

= $ 90,000 / 40%

= $225,000