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

Answer: (C)

Verified step by step guidance

1. 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.
2. 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: $\mathrm{Contribution} \mathrm{Margin} \mathrm{per} \mathrm{Unit}=\mathrm{Selling} \mathrm{Price} \mathrm{per} \mathrm{Unit}-\mathrm{Variable} \mathrm{Cost} \mathrm{per} \mathrm{Unit}$
3. 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: $\mathrm{Break}-\mathrm{Even} \mathrm{Sales} \mathrm{in} \mathrm{Units}=(\mathrm{Fixed} \mathrm{Costs}+\mathrm{Target} \mathrm{Profit})/\mathrm{Contribution} \mathrm{Margin} \mathrm{per} \mathrm{Unit}$
4. 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: $\mathrm{Net} \mathrm{Sales} \mathrm{Dollars}=\mathrm{Break}-\mathrm{Even} \mathrm{Sales} \mathrm{in} \mathrm{Units}\times \mathrm{Selling} \mathrm{Price} \mathrm{per} \mathrm{Unit}$
5. Step 5: Perform the calculations step by step using the formulas provided to determine the net sales dollars required to achieve the target profit.