Managerial Accounting Target Profit Question

Question

Santa Fe Electronics sells televisions. The average selling price of a TV is $970. The TV's are purchased from manufacturers at an average cost of $680 per unit, which includes shipping. Since customers pick up TVs directly from the shop, the company pays no delivery charge. Sales people are paid a fixed salary plus a commission of $40 per unit. All selling and adminstrative expenses, including the salaries, ar fixed at a total of $58,000 per month. In order to increase their sales, the company has decided to increase the unit commission to $60 for every TV sold above break even point.

How many units of TV's does company need to sell in order to earn a net operating income of $11,500 per month (round all decimal to one unit)
A) 309
B) 293
C) 243
D) 282
E) None
Please show help with steps.
I know a formula which is target profit + fixed expenses / cm ratio but it does not really help in getting units.

Answer 1

given:  All selling and administrative expenses, including the salaries, are fixed at a total of $58,000 per month

 

given: average selling price = $970/u; cost = $680/u

 

goal: $11,500 additional net profit/month

condition: above the break even point, sales personnel will earn a commission of $60 per television set

 

1. average selling price/u - cost/u - commission= 970 - 680 - 40 = current profit of $250/u

2. expenses = $58,000, so the break even point is $58,000 ÷ $250/u = 232 units/month (we have to round up, because we cannot sell a fractional television set)

3. the desired profit is $11,500/month

4. above 232 units, the cost will rise to $740/u, and profit will decrease to $230/u

5. the number of sets above 232 = $11,500 ÷ $230/u = 50u

6. thus, the total number of sets which must be sold to pay expenses and reach the desired extra profit will be 282 units.

7. the answer will be option D