Acme Medical Supply Company desires a target operating income amount of $100,000

Question

Acme Medical Supply Company desires a target operating income amount of $100,000, with assumption inputs as follows: • Desired (target) operating income amount 5 $100,000 • Unit price for sales 5 $80 • Variable cost per unit 5 $60 • Total fixed cost 5 $60,000 Compute the required revenue to achieve the target operating income and compute a contribution income statement to prove the totals. Please show in excel form.The general idea of this question is this:
A company wants to make $100,000. This is what is referred to as their "target operating income".  
They have a product that sells for $80.  
The variable cost per item is $60 -- so every time they make an item it costs them $60.
Their total fixed cost is $60,000 -- so, no matter how many items they make they will have $60,000 in expenses.

There are two types of dollar amounts that we mentioned in the assumptions above: 1. overall dollar amounts 2. per item costs
If we look at the per item costs, we can see that each unit of the item sells for $80 but costs $60 to produce. The difference between these two numbers is what is known as the 'contribution margin' per unit. It is called the contribution margin because this is the amount of money that is 'contributed' to the operating income each time an item is sold.

The Assignment asks you to determine the required revenue (per unit sales price X volume of items sold) to achieve the desired operating income.
If you look in the middle of page 200 you will see the formula for Target Operating Income Using the Contribution Margin Method:
N = (fixed costs + target operating income)/ (contribution margin per unit)
If you plug in the identified numbers (based on the information above), you will determine the number of units ("N") that will need to be sold in order to achieve an operating income of $100,000.

Explanation / Answer

Acme Medical Supply Details Amt $ Unit sales Price                                     80 Less Variable cost per unit=                                   60 Contribution Margin per unit                                     20 Fixed cost =                           60,000 Required net Operating income =                        100,000 Target Total Contribution Margin =                        160,000 Contribution Margin per unit                                     20 Required sales units for the target operating income=                             8,000 Required sales revenue for the Target operating income =8000*80=                        640,000 So the required Sales revenue =                        640,000

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