Native American Pottery Expects to Earn a Profit of $95,000

Essay

Native American Pottery expects to earn a profit of $95,000 in 20xx. The company manufactures ornamental ceramic tiles. Each lot of 100 blocks requires variable costs of $5.00 for direct materials, $3.50 for direct labor, and $4.50 for overhead. Total variable costs are thus $13 per lot. Fixed costs for 20xx are expected to be $130,000. Each hundred-block lot will sell for $33.
a. Determine how many lots of ceramic tiles the company must sell to earn its targeted profit, and convert this amount to sales dollars.
b. Compute breakeven sales in dollars.
c. Explain the dollar difference between breakeven sales dollars and the sales dollars necessary to earn the targeted profit. Use the contribution margin as part of your explanation.