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If the contribution margin per unit is $40 and fixed costs are $20,000, how many

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Question: If the contribution margin per unit is $40 and fixed costs are $20,000, how many units need to be sold to achieve a target profit of $10,000?

Options:

  1. 750 units
  2. 500 units
  3. 600 units
  4. 400 units

Correct Answer: 750 units

Solution: 

Required units = (Fixed Costs + Target Profit) / Contribution Margin per Unit = ($20,000 + $10,000) / $40 = 750 units.

If the contribution margin per unit is $40 and fixed costs are $20,000, how many

Practice Questions

Q1
If the contribution margin per unit is $40 and fixed costs are $20,000, how many units need to be sold to achieve a target profit of $10,000?
  1. 750 units
  2. 500 units
  3. 600 units
  4. 400 units

Questions & Step-by-Step Solutions

If the contribution margin per unit is $40 and fixed costs are $20,000, how many units need to be sold to achieve a target profit of $10,000?
  • Step 1: Identify the contribution margin per unit, which is given as $40.
  • Step 2: Identify the fixed costs, which are given as $20,000.
  • Step 3: Identify the target profit, which is given as $10,000.
  • Step 4: Add the fixed costs and the target profit together: $20,000 + $10,000 = $30,000.
  • Step 5: Divide the total from Step 4 by the contribution margin per unit: $30,000 / $40.
  • Step 6: Calculate the result from Step 5, which equals 750 units.
  • Contribution Margin – The amount each unit contributes to covering fixed costs and generating profit, calculated as sales price minus variable costs.
  • Fixed Costs – Costs that do not change with the level of production or sales, which must be covered before any profit can be made.
  • Target Profit – The desired profit level that a business aims to achieve over a specific period.
  • Break-even Analysis – A financial calculation to determine the number of units that must be sold to cover all costs, including both fixed and variable costs.
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