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Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $300. Annual fixed costs are $870,000. Current sales volume is $4,200,000. Flannigan Company management targets an annual pre-tax income of $1,125,000. Compute the dollar sales to earn the target pre-tax net income.

Respuesta :

Answer:

$5,985,000

Explanation:

The formula to compute the dollar sales to earn the target pre tax income is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin ratio)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $450 - $300

= $150

And, the contribution margin ratio is

= ($150) ÷ ($450) × 100

= 33.33%

So, the dollar sales is

= ($870,000 + $1,125,000) ÷ (33.33%)

= $5,985,000

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