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Please help, I am having some issues solving the following questions. Thank you Mastery Problem: Target Income and Margin of Safety Target Income and Margin
Please help, I am having some issues solving the following questions. Thank you
Mastery Problem: Target Income and Margin of Safety Target Income and Margin of Safety At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to eam a target or desired amount of profit may be computed. Complete the following: If a company makes $3 off of each unit it sells and has a target operating income of $1,200, then it must sell will be $25,000, how much revenue must it earn to reach its target operating income? 350,000 X 400 V units. Similarly, if a company has a target operating income of $175,000 and knows that total expenses for the period units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point. Complete the following: Expressed in terms of units, if a company hits its break-even point in units (say, 25 units) and actually sells 100 units, then the margin of safety is actually has sales revenue of $800,000, then its margin of safety is The target units will be the target income divided by the profit per unit The margin of safety in terms of units is the difference between projected units sold and the breakeven level of units. The margin of safety in terms of revenue is the difference between projected units sold times their price, and the breakeven level of units times their price APPLY THE CONCEPTS: Target income (number of units sold) Suppose a business has pricing and cost information as follows:: 75 V units. Similarly, if the break-even point in sales revenue is $500,000, and it Price and Cost Information Selling Price per unit Variable Cost per Unit Total Fixed Cost Amount $10.00 $5.00 $100 For the upcoming period, the company wishes to generate operating income of $400. Given the cost and pricing structure for the company's product, how many units must the company sell to attain its target income? Remember that the basic equation for calculating operating income is as follows:
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