Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. Use the formula method to determine the sales dollars that must be generated to attain target profits of $2,500 per month. <\/p>\n\n\n\n
a. $2,550 <\/p>\n\n\n\n
b. $5,013 <\/p>\n\n\n\n
c. $8,456 <\/p>\n\n\n\n
d. $10,555<\/p>\n\n\n\n
The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n To calculate the sales dollars needed to achieve the target profit, we use the formula:<\/p>\n\n\n\n [ [ [ [ The sales dollars that must be generated to attain a target profit of $2,500 per month is b. $5,013<\/strong>.<\/p>\n\n\n\n This problem involves determining the sales revenue required to achieve a specific profit using cost-volume-profit (CVP) analysis. The key concept here is the contribution margin<\/strong>, which represents the amount remaining from sales revenue after variable costs are covered. This amount contributes to fixed costs and profit.<\/p>\n\n\n\n We first calculate the contribution margin per unit by subtracting the variable expense ($0.36) from the selling price ($1.49), resulting in $1.13 per cup. Next, the contribution margin ratio is derived by dividing the contribution margin per unit by the selling price, yielding approximately 0.758 or 75.8%. This ratio indicates that 75.8% of every sales dollar contributes to covering fixed expenses and generating profit.<\/p>\n\n\n\n Using the formula, we add the fixed expenses ($1,300) and the target profit ($2,500) to get the total amount needed to cover both. Dividing this sum ($3,800) by the contribution margin ratio (0.758) gives the required sales revenue, approximately $5,013.<\/p>\n\n\n\n This method is crucial for business planning, as it allows companies like Coffee Klatch to set realistic sales targets, manage costs, and ensure profitability.<\/p>\n","protected":false},"excerpt":{"rendered":" Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 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\\text{Sales Dollars} = \\frac{\\text{Fixed Expenses} + \\text{Target Profit}}{\\text{Contribution Margin Ratio}}
]<\/p>\n\n\n\nStep 1: Calculate the Contribution Margin per Unit<\/h3>\n\n\n\n
\\text{Contribution Margin per Unit} = \\text{Selling Price per Unit} – \\text{Variable Expense per Unit}
]
[
\\text{Contribution Margin per Unit} = 1.49 – 0.36 = 1.13
]<\/p>\n\n\n\nStep 2: Calculate the Contribution Margin Ratio<\/h3>\n\n\n\n
\\text{Contribution Margin Ratio} = \\frac{\\text{Contribution Margin per Unit}}{\\text{Selling Price per Unit}}
]
[
\\text{Contribution Margin Ratio} = \\frac{1.13}{1.49} \\approx 0.758
]<\/p>\n\n\n\nStep 3: Use the Formula to Calculate Sales Dollars<\/h3>\n\n\n\n
\\text{Sales Dollars} = \\frac{\\text{Fixed Expenses} + \\text{Target Profit}}{\\text{Contribution Margin Ratio}}
]
[
\\text{Sales Dollars} = \\frac{1,300 + 2,500}{0.758} = \\frac{3,800}{0.758} \\approx 5,013
]<\/p>\n\n\n\nFinal Answer:<\/h3>\n\n\n\n
\n\n\n\nExplanation (300 Words)<\/h3>\n\n\n\n