If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000

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What’s inside this PDF?

Question: If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000 with a contribution margin of $10 per unit, how many units must be sold?

Options:

1,000
500
1,500
2,000

Correct Answer: 1,000

Solution:

Required sales = (Fixed costs + Desired profit) / Contribution margin per unit = ($5,000 + $10,000) / $10 = 1,500 units

If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000

Practice Questions

If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000 with a contribution margin of $10 per unit, how many units must be sold?

1,000
500
1,500
2,000

Questions & Step-by-Step Solutions

If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000 with a contribution margin of $10 per unit, how many units must be sold?

Step 1: Identify the fixed costs. In this case, the fixed costs are $5,000.
Step 2: Identify the desired profit. Here, the desired profit is $10,000.
Step 3: Identify the contribution margin per unit. The contribution margin is $10 per unit.
Step 4: Add the fixed costs and the desired profit together. This gives you $5,000 + $10,000 = $15,000.
Step 5: Divide the total from Step 4 by the contribution margin per unit. So, $15,000 / $10 = 1,500 units.
Step 6: The result means the company must sell 1,500 units to achieve the desired profit.

Break-even analysis – Understanding how fixed costs, desired profit, and contribution margin interact to determine the number of units needed to be sold.
Contribution margin – The amount each unit contributes to covering fixed costs and generating profit.
Fixed costs – Costs that do not change with the level of output, which must be covered before profit can be realized.

If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000

What’s inside this PDF?

If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000

Practice Questions

Questions & Step-by-Step Solutions

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