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If a company has a contribution margin of $30 per unit and fixed costs of $12,00

Practice Questions

Q1
If a company has a contribution margin of $30 per unit and fixed costs of $12,000, how many units must be sold to achieve a target profit of $3,000?
  1. 500 units
  2. 600 units
  3. 400 units
  4. 700 units

Questions & Step-by-Step Solutions

If a company has a contribution margin of $30 per unit and fixed costs of $12,000, how many units must be sold to achieve a target profit of $3,000?
  • Step 1: Identify the contribution margin per unit, which is given as $30.
  • Step 2: Identify the fixed costs, which are given as $12,000.
  • Step 3: Identify the target profit, which is given as $3,000.
  • Step 4: Add the fixed costs and the target profit together: $12,000 + $3,000 = $15,000.
  • Step 5: Divide the total from Step 4 by the contribution margin per unit: $15,000 / $30.
  • Step 6: Calculate the result from Step 5, which equals 500 units.
  • 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 production or sales.
  • Target Profit – The desired profit level that the 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 profit.
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