Question

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Flannigan Company management targets an annual pre-tax income of $1,125,000. Compute the unit sales to earn the target pre-tax net income.

Multiple Choice
4,444.
7,500.
6,650.

Answer 1

Hi your question lacks the number of units sold hence i will give you the total sales to earn the pre-tax net income

$4812500 ( total sales to earn the pre-tax net income )

Step-by-step explanation:

selling price of a single product = $450

variable cost = $270

contribution margin = selling price - variable cost

= 450 - 270 = $180

contribution margin ratio = contribution margin / selling price

= 180 / 450 = 0.4 = 40%

Annual fixed cost = $800000

Annual pre income tax = $1125000

Therefore the required contribution margin will be = annual fixed cost + annual pre income tax

= 800000 + 1125000

= $1925000

hence to get the sales to earn pre tax net income will be

required contribution margin / contribution margin ratio

= 1925000 / 0.4

= $4812500 ( total sales to earn the pre-tax net income )

Answer 2

Answer: The company's current sales is 9,333 units.

It has to sell a total of 10,695 units in order to achieve a target pre tax income of $1,125,000.

First we calculate the number of units sold at the current sales level.

We compute this as:

`(Sales)/(Price per unit) = (4,200,000)/(450)  = 93333.33 units`

Next we find the contribution margin per unit.

`Contribution margin per unit =  Selling Price - Variable Cost`

`Contribution margin per unit =  450 - 270`

Contribution Margin per unit is $180.

Flannigan Company's current per-tax income is calculated as :

Sales 4200000

less:Variable costs @ $270 for 9333.33 units -2520000

Contribution 1680000

less:Fixed Costs -800000

Pre tax income 880000

With this information, we can calculate the Contribution Margin required if the pre tax income should be $1,125,000. We work backwards in order to find the Contribution Margin from Pre-tax income.

Targeted Pre Tax income $1,125,000

Add: Fixed Costs $ 800,000

Contribution Margin $1,925,000

Since we know the per unit contribution, we can calculate the number of units to be sold as:

`Targeted sales in units = (New contribution margin)/(Contribution per unit)`

`Targeted sales in units = (1,925,000)/(180) = 10,694.44`

Since products can't be sold in parts, any decimal value after a whole number will be rounded up. Hence the targeted sales will be 10,695 units.