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hi everyone i hve this question which deals with ‘Required profit level’
Question Company A wished to make a profit of $150,000 .It has fixed costs $75,000.00 with C/S ration of 0.75 and selling price of $10.00.Question: How may units would the company need to sell in order to achivs the required level of profit.
Please show all working when providing answerhere is your solution :
1. Sales revenue (that company needs to make to reach required level of profit) =
fixed costs + Target profit / CS ratio = 75.000 + 150.000 / 0,75 = 275.000 usd.2. No of units to be sold = target sales revenue / sales price = 275.000 / 10.00 = 27.500 units.
Here either try to remember the above mentioned formula for sales revenue or try to understand the logic behind it.
I’m sure that it is described in your F2 books, or else check F5 materials on CVP analysis,
e.g. this formula u can find in on of F5 articles , p.5 :
https://www2.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_jul10_F5_t_cvp.pdfgood luck !
Well for me its,
Contribution= fixed cost + targeted profit
= 75000 + 150000
= 225000C/S Ratio = contribution/sales revenue
0.75 = 225000/ sales revenue
Sales revenue = 300000No. of units that should be sold = 300000/ selling price
= 30000 units.Can you confirm the answer.
@kathleen.. second answer is correct one.. 🙂 tartget profit= fixed cost+profit/sales-vc or cs ratio…. this formula is enough for c/v analysis
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