Multiple Choice
Which of the following financial metrics best measures how profitable a firm has been during a period?
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4. Merchandising Operations
Net Sales
Multiple Choice
If a company wants to achieve a target profit of \$120 and has fixed costs of \$200, a unit selling price of \$20, and a unit variable cost of \$10, what are the net sales dollars required to attain the target profit?
A
\$6400
B
\$6400
C
\$640
D
\$640
Verified step by step guidance1
Step 1: Understand the problem. The company wants to achieve a target profit of \$120, has fixed costs of \$200, a unit selling price of \$20, and a unit variable cost of \$10. The goal is to calculate the net sales dollars required to attain the target profit.
Step 2: Use the Contribution Margin per Unit formula to determine how much profit is generated per unit sold. Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit. In MathML:
Step 3: Calculate the Break-Even Sales in Units using the formula: Break-Even Sales in Units = (Fixed Costs + Target Profit) / Contribution Margin per Unit. In MathML:
Step 4: Convert the Break-Even Sales in Units to Net Sales Dollars using the formula: Net Sales Dollars = Break-Even Sales in Units × Selling Price per Unit. In MathML:
Step 5: Perform the calculations step by step using the formulas provided to determine the net sales dollars required to achieve the target profit.
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