Opal Company manufactures a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed costs are $46,800. If Opal desires a monthly target operating profit equal to 15% of sales, sales will have to be (rounded):
A) 1,486 units.
B) 3,467 units.
C) 1,040 units.
D) 2,600 units.

Question

Quizplus · Accepted Answer

To find the required sales, first calculate the target operating profit as 15% of sales (0.15 * Sales). The contribution margin per unit is $90 * 0.35 = $31.50. Using the equation: Sales = Fixed Costs + Target Profit / Contribution Margin Ratio, solve for sales: $46,800 + 0.15 * Sales = 0.35 * Sales. Solving gives sales of $234,000, which divided by the price per unit ($90) gives approximately 2,600 units.

Opal Company Manufactures a Single Product That It Sells for $90