Santiago company incurs annual fixed costs of $66,000. variable costs for santiago's product are $34 per unit, and the sales price is $50 per unit. santiago desires to earn an annual profit of $34,000. required use the contribution margin ratio approach to determine the sales volume in dollars and units required to earn the desired profit.

The Sales volume in dollars and units required by Santiago Company to earn the desired profit of $34,000 annually are $312,500 and 6,250 units, respectively.

Data and Calculations:

Fixed costs = $66,000

Variable cost per unit = $34

Sales price per unit = $50

Contribution margin per unit = $16 ($50 - $34)

Contribution ratio = 32% ($16/$50 x 100)

Target profit = $34,000

Sales volume to earn target profit = (Fixed costs + Target Profit)/Contribution margin per unit

= ($66,000 + $34,000)/$16

= 6,250 units

Sales value to earn target profit =  (Fixed costs + Target Profit)/Contribution  ratio

=  ($66,000 + $34,000)/32%

= $312,500

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6250

Explanation:

From the question, we are informed that Santiago company incurs annual fixed costs of $66,000. variable costs for santiago's product are $34 per unit, and the sales price is $50 per unit. santiago desires to earn an annual profit of $34,000.

The contribution margin ratio approach to determine the sales volume in dollars and units required to earn the desired profit for thus:

Contribution margin ratio = (Sales price - Variable cost)/Sales price

= (50-34)/50

= 16/50

= 0.32

Sales = (66,000 + 34,000)/0.32

= 100,000/0.32

= 312,500

Sales volume in units will be sales divided by price. This will be:

= 312,500/50

= 6250

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