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

Question

Mariah Mckinney

Business

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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Answers (1)

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Briley · Answer 1

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