Question

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. 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.

Answer 1

Answer:

$4,812,500 Dollar sales to achieve EBT of 1,125,000

Explanation:

The goal would be to calcualte the break even formula adding in the dividend the target profit:

$\frac{FixedCost+Target Profit}{Contribution Margin Ratio} = Sales to Target Profit$

Where:

$\frac{Contribution Margin}{Sales Revenue} = Contribution Margin Ratio$

Where:

$Contribution Margin - Fixed Cost = Net Income$

So first  step

$450 Sales - $270 Variable Cost = $180 Contribution Margin

Second:

180/450 = 40% CM ratio

Finally:

$\frac{FixedCost+Target Profit}{Contribution Margin Ratio} = Sales to Target Profit$

$\frac{800,000+1,125,000}{0.40} = 4,812,500$