EJL Herbal Remedies sells several products for $17 per unit. Variable costs per

Question

EJL Herbal Remedies sells several products for $17 per unit. Variable costs per unit are as follows: Direct material $5.00 Direct labor $1.00 Indirect manufacturing costs $0.50 Selling commissions $3.00 EJL's annual fixed costs total $ 82,500.

1. The sales dollars that EJL must generate to break even is (round if necessary): a. $ 400,500 b. $ 187,500 c. $ 218,000 d. $ 630,000

2. The sales dollars that EJL must generate to make a profit of $ 75,000 is (round if necessary):

$ 400,500

$ 218,000

$ 357,000

$ 630,000

$ 400,500

$ 218,000

$ 357,000

$ 630,000

Explanation / Answer

1) Variable cost per unit = (5+1+.5+3) = 9.50

Contribution margin per unit = (17-9.5) = 7.50 per unit

Contribution margin ratio = (7.5*100/17) = 44%

Break even sales = 82500/.44 = 187500

so answer is b) $187500

2) Required sales = (82500+75000)/.44 = 357000

so answer is c) $357000

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