Yellow Dot Inc sells a single product for 10 Variable costs

Yellow Dot, Inc. sells a single product for $10. Variable costs are $4 per unit and fixed costs total $120,000 at a volume level of 10,000 units. What dollar sales level would Yellow Dot have to achieve to earn a target profit of $240,000?

$400,000.

$500,000.

$600,000.

$750,000.

$900,000.

		$400,000.
		$500,000.
		$600,000.
		$750,000.
		$900,000.

Solution

Answer is $600,000 Selling price pr unit 10 Less: Variable ccost per unit 4 Contribution margin per unit 6 CM ratio: Contribution/ Selling price *100 = 6/10*100 = 60% Fixed cost 120000 Desired Income 240000 Desired Contribution 360000 Target sales in $: Desired Contribution/ Cm ratio*100 360000 /60% = $ 600,000