Exercise 5-7 Compute the Level of Sales Required to Attain a Target Profit [LO5-
ID: 2540681 • Letter: E
Question
Exercise 5-7 Compute the Level of Sales Required to Attain a Target Profit [LO5-6] [The following information applies to the questions displayed below.] Lin Corporation has a single product whose selling price is $134 and whose variable expense is $67 per unit. The company’s monthly fixed expense is $32,300. References Section BreakExercise 5-7 Compute the Level of Sales Required to Attain a Target Profit [LO5-6] 2.value: 2.00 pointsRequired information Exercise 5-7 Part 1 Required: 1. Using the equation method, determine for the unit sales that are required to earn a target profit of $7,900. (Round up your answer to the nearest whole number.) HintsReferenceseBook & Resources Hint #1 Check my work 3.value: 2.00 pointsRequired information Exercise 5-7 Part 2 2. Using the formula method, determine for the unit sales that are required to earn a target profit of $8,600. (Round up your answer to the nearest whole number.)
Explanation / Answer
Profit = [ Unit CM * Q ] - Fixed expense
1. Unit sales = 600 units The equation method yields the required unit sales , Q , as follows :Profit = [ Unit CM * Q ] - Fixed expense
$7900 = [ ( $134 - $67 ) * Q ] - 32300 7900 = [ 67 * Q ] - 32300 67 * Q = 32300 + 7900 Q = 40200 / 67 Q = 600 units 2. Units sold to attain the target profit = 610 units The formula approach yields the required unit sales as follows : Units sold to attain the target profit = Target profit + Fixed expenses / Unit contribution margin = $8600 + $32300 / 67 = $40900 / $67 = 610 units