If the fixed costs are $2,400, targeted before-tax operating profit is $1,200, tax rate is 25%, selling price per unit is $2, and contribution margin ratio is 40%, then the sales volume is 9,000 units.

Question

Quizplus · Accepted Answer

To find the sales volume, calculate the required sales using the formula: Required Sales = (Fixed Costs + Target Profit) / Contribution Margin Ratio. The target profit should be adjusted for taxes: $1,200 / (1 - 0.25) = $1,600. Required Sales = ($2,400 + $1,600) / 0.40 = $10,000. Sales volume = $10,000 / $2 = 5,000 units, not 9,000.

If the Fixed Costs Are $2,400, Targeted Before-Tax Operating Profit