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12 July, 04:28

cost allocationClipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $5 and has a sales price of $9. The high-end model costs $9 and sales for $15. Fixed costs associated with this product line amount to $35,880. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the total number of clippers that must be sold to earn a $12,420 profit

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  1. 12 July, 04:41
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    Units to be sold to achieve target profit = 10,500 units

    Explanation:

    The units to be sold to achieve target profit is determined as follows:

    Units to be sold to achieve target profit

    = (Fixed cost + Target Profit) / Average contribution per unit

    Economy High-end

    Contribution per unit = 9-5=$4 15-9 = $6

    Average contribution per unit = ($4 * 70%) + (30%*$6) = $4.6

    Units to be sold to earn a profit of $12,420

    = Fixed cost + Target Profit/Average contribution per unit

    = (35,880 + 12,420) / 4.6

    = 10,500 units

    Units to be sold to achieve target profit = 10,500 units
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