Rothe Company manufactures and sells 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 Rothe 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

The formula for calculating the required sales to achieve a target operating profit is:

Required Sales = (Fixed Costs + Target Operating Profit) / Contribution Margin Ratio

Substituting the given values:

Required Sales = ($46,800 + 0.15*$90*X) / 0.35

where X is the required sales in units.

Solving for X:

X = 2,600 units

Therefore, the answer is D, i.e., sales will have to be 2,600 units to achieve a target operating profit equal to 15% of sales.

Rothe Company Manufactures and Sells a Single Product That It