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25 June, 06:21

M and M, Inc. produces a product that has a variable cost of $3.80 per unit. The company's fixed costs are $44,800. The product is sold for $7 per unit and the company desires to earn a target profit of $12,800. What is the amount of sales that will be necessary to earn the desired profit?

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  1. 25 June, 06:23
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    the required sales are $126,000

    Step-by-step explanation:

    Since the total cost C is equal to the fixed costs plus the variable costs

    C = fixed costs + variable costs = $44,800 + $3.80/unit * Q

    where Q = quantity of units sold

    the sales S will be

    S = unit price * quantity sold = $7/unit * Q

    finally since the profit is equal to the sales minus the total costs

    P = S - C

    $12,800 = $7/unit * Q - ($44,800 + $3.80/unit * Q)

    $12,800 + $44,800 = $7/unit * Q - $3.80/unit * Q = $3.2 / unit * Q

    Q = $57,600 / $3.2 / unit = 18000 units

    therefore the required sales are

    S=$7/unit * Q = $7/unit * 18000 units = $126,000

    therefore the required sales are $126,000
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