Question

Gena Manufacturing Company has a fixed cost of $263,000 for the production of tubes. Estimated sales are 153,800 units. A before tax profit of $126,114 is desired by the controller. If the tubes sell for $24 each, what unit contribution margin is required to attain the profit target

Answer 1

2.530 units  contribution margin is required to attain the profit target

Solution:

Given,

Fixed cost = $263,000

Estimated sales are 153,800 units

Tax profit of $126,114

Now,

(Fixed cost + desired profit) ÷ Contribution margin per unit

= Units necessary to earn desired profit ($263,000 + $126,114 ) ÷ ($153,800 - $24)

= $389,114 ÷ $153,776

= 2.530 units