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Yoda and his Jedi Knights, have just received a project to produce a new Pink Lightsaber....

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Finance

Yoda and his Jedi Knights, have just received a project toproduce a new Pink Lightsaber. The variable cost per unit is at$750, the sales price would be set at twice the VC/unit, and thefixed costs are $1,000,000. The Storm Troopers have agreed thatthey will put up the funds if the project is likely to have anoperating income of $500,000 or more. What amount of sales would beneeded in order to meet this profit goal?

Answer & Explanation Solved by verified expert
3.8 Ratings (665 Votes)

Target sales to achieve such target income is $ 15,00,000 or more.

Working:

Step-1:Calculation of contribution margin ratio
Contribution margin ratio = Contribution margin / Sales
= $                   750 / $    1,500
= 50%
Working:
Sales = Variable cost *2
= 750*2
= $                1,500
Contribution margin = Sales price per unit - Variable cost per unit
= $                1,500 - $        750
= $                   750
Step-2:Calculation of target sales
Target sales = Target contribution margin / Contribution margin ratio
= $       15,00,000 / 50%
= $       30,00,000
Working:
Fixed cost $       10,00,000
Target profit $          5,00,000
Target contribution margin $       15,00,000

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Transcribed Image Text

Yoda and his Jedi Knights, have just received a project toproduce a new Pink Lightsaber. The variable cost per unit is at$750, the sales price would be set at twice the VC/unit, and thefixed costs are $1,000,000. The Storm Troopers have agreed thatthey will put up the funds if the project is likely to have anoperating income of $500,000 or more. What amount of sales would beneeded in order to meet this profit goal?

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