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A company produces a product with a variable cost of $25 and a selling price of

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Question: A company produces a product with a variable cost of $25 and a selling price of $50. If the company wants to achieve a profit of $15,000 with fixed costs of $30,000, how many units must be sold?

Options:

  1. 1,000
  2. 800
  3. 600
  4. 1,200

Correct Answer: 800

Solution: 

Required units = (Fixed costs + Target profit) / Contribution margin per unit = ($30,000 + $15,000) / ($50 - $25) = 800 units.

A company produces a product with a variable cost of $25 and a selling price of

Practice Questions

Q1
A company produces a product with a variable cost of $25 and a selling price of $50. If the company wants to achieve a profit of $15,000 with fixed costs of $30,000, how many units must be sold?
  1. 1,000
  2. 800
  3. 600
  4. 1,200

Questions & Step-by-Step Solutions

A company produces a product with a variable cost of $25 and a selling price of $50. If the company wants to achieve a profit of $15,000 with fixed costs of $30,000, how many units must be sold?
  • Step 1: Identify the variable cost per unit, which is $25.
  • Step 2: Identify the selling price per unit, which is $50.
  • Step 3: Calculate the contribution margin per unit by subtracting the variable cost from the selling price: $50 - $25 = $25.
  • Step 4: Identify the fixed costs, which are $30,000.
  • Step 5: Identify the target profit, which is $15,000.
  • Step 6: Add the fixed costs and the target profit together: $30,000 + $15,000 = $45,000.
  • Step 7: Divide the total amount from Step 6 by the contribution margin per unit from Step 3: $45,000 / $25 = 1,800.
  • Step 8: The result from Step 7 is the number of units that must be sold to achieve the target profit.
  • Break-even Analysis – Understanding how to calculate the number of units needed to cover fixed costs and achieve a target profit.
  • Contribution Margin – The difference between the selling price and variable cost, which contributes to covering fixed costs and generating profit.
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