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A company incurs $10,000 in fixed costs and has a contribution margin of $25 per

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Question: A company incurs $10,000 in fixed costs and has a contribution margin of $25 per unit. How many units must be sold to achieve a target profit of $15,000?

Options:

  1. 1,000 units
  2. 600 units
  3. 800 units
  4. 700 units

Correct Answer: 800 units

Solution: 

Required Sales = (Fixed Costs + Target Profit) / Contribution Margin per Unit = ($10,000 + $15,000) / $25 = $25,000 / $25 = 1,000 units.

A company incurs $10,000 in fixed costs and has a contribution margin of $25 per

Practice Questions

Q1
A company incurs $10,000 in fixed costs and has a contribution margin of $25 per unit. How many units must be sold to achieve a target profit of $15,000?
  1. 1,000 units
  2. 600 units
  3. 800 units
  4. 700 units

Questions & Step-by-Step Solutions

A company incurs $10,000 in fixed costs and has a contribution margin of $25 per unit. How many units must be sold to achieve a target profit of $15,000?
  • Step 1: Identify the fixed costs. In this case, the fixed costs are $10,000.
  • Step 2: Identify the target profit. Here, the target profit is $15,000.
  • Step 3: Identify the contribution margin per unit. The contribution margin is $25 per unit.
  • Step 4: Add the fixed costs and the target profit together. This gives you $10,000 + $15,000 = $25,000.
  • Step 5: Divide the total from Step 4 by the contribution margin per unit. So, $25,000 / $25 = 1,000 units.
  • Step 6: Conclude that the company must sell 1,000 units to achieve the target profit.
  • Fixed Costs – Costs that do not change with the level of production or sales.
  • Contribution Margin – The amount each unit contributes to covering fixed costs and generating profit.
  • Break-even Analysis – Determining the number of units that must be sold to cover all costs and achieve a desired profit.
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