Tropp Corporation sells a product for $10 per unit.The fixed expenses are $420,000 per month and the unit variable expenses are 60% of the selling price.What sales would be necessary in order for Tropp to realize a profit of 10% of sales?
A) $1,050,000
B) $945,000
C) $1,400,000
D) $840,000

Question

Quizplus · Accepted Answer

CM ratio = 1 - Variable expense ratio = 1 - 0.60 = 0.40
Dollar sales to attain a target profit = (Target profit + Fixed expenses) ÷ CM ratio
X = [(0.10 × X) + $420,000] ÷ 0.40
X = 0.25X + $1,050,000
0.75X = $1,050,000
X = $1,050,000 ÷ 0.75 = $1,400,000

Tropp Corporation Sells a Product for $10 Per Unit