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In a case study, a company has a contribution margin of $40 per unit and fixed c

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Question: In a case study, a company has a contribution margin of $40 per unit and fixed costs of $200,000. How many units must be sold to achieve a target profit of $100,000?

Options:

  1. 5,000 units
  2. 7,500 units
  3. 10,000 units
  4. 12,500 units

Correct Answer: 10,000 units

Solution: 

Required units = (Fixed Costs + Target Profit) / Contribution Margin = ($200,000 + $100,000) / $40 = 7,500 units.

In a case study, a company has a contribution margin of $40 per unit and fixed c

Practice Questions

Q1
In a case study, a company has a contribution margin of $40 per unit and fixed costs of $200,000. How many units must be sold to achieve a target profit of $100,000?
  1. 5,000 units
  2. 7,500 units
  3. 10,000 units
  4. 12,500 units

Questions & Step-by-Step Solutions

In a case study, a company has a contribution margin of $40 per unit and fixed costs of $200,000. How many units must be sold to achieve a target profit of $100,000?
  • Step 1: Identify the contribution margin per unit, which is $40.
  • Step 2: Identify the fixed costs, which are $200,000.
  • Step 3: Identify the target profit, which is $100,000.
  • Step 4: Add the fixed costs and the target profit together: $200,000 + $100,000 = $300,000.
  • Step 5: Divide the total from Step 4 by the contribution margin: $300,000 / $40 = 7,500.
  • Step 6: The result from Step 5 is the number of units that must be sold to achieve the target profit, which is 7,500 units.
  • Contribution Margin – The amount per unit that contributes to covering fixed costs and generating profit.
  • Fixed Costs – Costs that do not change with the level of production or sales.
  • Target Profit – The desired profit level that a company aims to achieve.
  • Break-even Analysis – A calculation to determine the number of units that must be sold to cover costs and achieve a specific profit.
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