Answer: 6250
Explanation:
From the question, we are informed that Santiago company incurs annual fixed costs of $66,000. variable costs for santiago's product are $34 per unit, and the sales price is $50 per unit. santiago desires to earn an annual profit of $34,000.
The contribution margin ratio approach to determine the sales volume in dollars and units required to earn the desired profit for thus:
Contribution margin ratio = (Sales price - Variable cost)/Sales price
= (50-34)/50
= 16/50
= 0.32
Sales = (66,000 + 34,000)/0.32
= 100,000/0.32
= 312,500
Sales volume in units will be sales divided by price. This will be:
= 312,500/50
= 6250
The Sales volume in dollars and units required by Santiago Company to earn the desired profit of $34,000 annually are $312,500 and 6,250 units, respectively.
Data and Calculations:
Fixed costs = $66,000
Variable cost per unit = $34
Sales price per unit = $50
Contribution margin per unit = $16 ($50 - $34)
Contribution ratio = 32% ($16/$50 x 100)
Target profit = $34,000
Sales volume to earn target profit = (Fixed costs + Target Profit)/Contribution margin per unit
= ($66,000 + $34,000)/$16
= 6,250 units
Sales value to earn target profit = (Fixed costs + Target Profit)/Contribution ratio
= ($66,000 + $34,000)/32%
= $312,500
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