Question

Palms, Inc. wants to sell enough palm trees to earn a profit of $20,000. If the unit sales price is $40, unit variable cost is $22, and total fixed costs are $120,400, how many trees must be sold to earn a profit of $20,000?a. 6,689.
b. 312,000.
c. 7,800.
d. 8,911.

Answer 1

Answer:

c. 7,800

Explanation:

Contribution margin per tree = Unit selling price - Unit variable cost = $40 - $22 = $18

Sales(trees) required = (Fixed costs+Operating income) / Contribution margin per tree = ($120,000+$20,000) / $18 = $140,000 / $18 = 7,800 trees

Answer 2

Answer: Number of tress to be sold = 7,800-C

Explanation:

Contribution margin =  Selling expense - Variable cost

= $40- $22

= $18

Contribution Margin Ratio= Contribution Margin/ sales expense  x 100

=18/ 40 x 100

= 45%

To earn a  target profit of $20,000

A) Sales to attain the target profit = [(Fixed expenses + Target profit) ÷ Contribution Margin  ratio]

= ($120,400+ $20,000) / 0.45

$140,400/0.45

= $312,000

No. of tress to be sold =Sales to attain the target profit/ selling price

$312,000/$40

=$7,800