Exercise 22-7 (Part Level Submission) Appliance Possible Inc. (AP) is a manufact

Question

Exercise 22-7 (Part Level Submission)

Appliance Possible Inc. (AP) is a manufacturer of toaster ovens. To improve control over operations, the president of AP wants to begin using a flexible budgeting system, rather than use only the current master budget. The following data are available for AP’s expected costs at production levels of 82,000, 92,000, and 102,000 units.

If AP sells the toaster ovens for $16 each, how many units will it have to sell to make a profit of $328,500 before taxes?

Variable costs     Manufacturing $6 per unit     Administrative $3 per unit     Selling $2 per unit Fixed costs     Manufacturing $144,000     Administrative $76,000

Explanation / Answer

Contribution margin=Sales-Variable costs

=$16-(6+3+2)=$5 per unit

Total fixed costs=(144000+76000)=$220000

Target Contribution margin=Fixed costs+Target profits

=(220,000+328500)=$548500

Hence units to be sold=(548500/5)=109700 units.

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