M and M, Inc. produces a product that has a variable cost of $4.20 per unit. The company's fixed costs are $45,600. The product is sold for $8 per unit and the company desires to earn a target profit of $11,400. What is the amount of sales that will be necessary to earn the desired profit

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jbug1950 jbug1950

06-06-2022
Business

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M and M, Inc. produces a product that has a variable cost of $4.20 per unit. The company's fixed costs are $45,600. The product is sold for $8 per unit and the company desires to earn a target profit of $11,400. What is the amount of sales that will be necessary to earn the desired profit

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nikitavidya0 nikitavidya0 · Answer 1 · 2022-06-14T09:38:05-04:00

The amount of sales that will be necessary to earn the desired profit is $120,000.

What is desired profit?

Desired profit refers to the amount of the profit expected by the company which is estimated by them as per the sales of the company. The sales are also estimated and the company makes the budget of it.

To calculate the desired sale we need to calculate the contribution which is calculated as follows:-

Contribution margin per unit = (Selling price per unit - Variable costs per unit)

Contribution margin per unit = ($8 per unit - $4.20 per unit) = 3.80 per unit

Break-even point in units = (Fixed costs + Desired profit) ÷ Contribution margin per unit

Break-even point in units = ($45,600 + $11,400) ÷ 3.80 per unit = 15,000 units

Break-even point in dollars = Break-even point in units × Selling price per unit

Break-even point in dollars = 15,000 units × $8 = $120,000

Thus the desired sales is $120,000.

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What is desired profit?

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