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Target Incomes for Auto A and Auto B

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Assume that a car manufacturer produces two products, Auto A and Auto B. Auto A sells for $23,000 each and Auto B is a more luxurious product and sells for $32,000 each. VC for Auto A = $10,000 each and its FC runs at $100,000 per period. Auto B, on the other hand, has a cost structure of VC = $15,000 and FC = 150,000. If the company's target profit is $200,000 per the period, how many Auto As AND Auto Bs should it estimate selling to achieve its target income?

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Solution Summary

In this solution we determine a pair of target incomes.

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Sales to achieve target profit = (Fixed cost+Target profit )/Contribution Margin per unit

For Auto ...

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