Chicago Company incurs annual fixed costs of $80,000. Variable costs are $3.00 per unit, and the sales price is $10 per unit. Chicago desires to earn an annual profit of $60,000.Required:Use the contribution margin ratio approach to determine the sales volume in dollars and units needed to earn the desired profit.
What will be an ideal response?
Contribution margin ratio = ($10 ? $3) ÷ $10 = 70%
Sales in dollars = ($80,000 + $60,000) ÷ 70% = $200,000
Sales in units = $200,000 ÷ $10 per unit = 20,000 units
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