Question

Opal Company manufactures a single product that it sells for $70 per unit and has a contribution margin ratio of 35%. The company's fixed costs are $46,200. If Opal desires a monthly target operating profit equal to 15% of sales, sales will have to be (rounded):

1,886 units.

4,400 units.

1,320 units.

3,300 units.

Answer 1

Selling Price per unit = $70
Contribution Margin Ratio = 35%
Operating Profit = 15% * Sales
Fixed Costs = $46,200

Operating Profit = Contribution Margin - Fixed Costs
Operating Profit = Contribution Margin Ratio * Sales - Fixed Costs
15% * Sales = 35% * Sales - $46,200
20% * Sales = $46,200
Sales = $231,000

Number of unit sold = Sales / Selling Price per unit
Number of unit sold = $231,000 / $70
Number of unit sold = $3,300