You are provided with production activity information for Artists Abound Inc. Th

Question

You are provided with production activity information for Artists Abound Inc. The company has a target profit of $500,000. Calculate the level of sales the company needs to sell to reach this target profit.

Direct Materials 60.00 per unit
Direct Labor 190.00 per unit
Variable Overhead 17.00 per unit
Fixed Overhead 8.00 per unit
Variable Selling 33.00 per unit
Fixed General and administrative 12.00 per unit
Units Produced 500 per month
Units in beginnning finished goods - 0
Units Sold 490
Selling Price 1,500.00 per unit
Target Profit 500,000 per month

Explanation / Answer

Direct materials 60 Direct labor $190 Variable overhead 17 Variable selling overhead 33 Total variable cost per unit $300 Unit selling price $1,500 Unit contribution $1,200 (1,500-300) Fixed cost per unit(8.00+12.00) 20 Fixed expenses(490*20) 9,800 Target profit 500,000 Fixed Costs + Target Net income/Conotributionmargin per unit = Required sales 9,800+500,000/1,200= Reuired Sales 425 units The company needs to sell reach this target profit is 425 units

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