A company has fixed costs of $30,000 and a contribution margin of $10 per unit.
Practice Questions
Q1
A company has fixed costs of $30,000 and a contribution margin of $10 per unit. How many units must be sold to achieve a target profit of $10,000?
4,000
3,000
2,000
5,000
Questions & Step-by-Step Solutions
A company has fixed costs of $30,000 and a contribution margin of $10 per unit. How many units must be sold to achieve a target profit of $10,000?
Step 1: Identify the fixed costs, which are $30,000.
Step 2: Identify the target profit, which is $10,000.
Step 3: Identify the contribution margin per unit, which is $10.
Step 4: Add the fixed costs and the target profit together: $30,000 + $10,000 = $40,000.
Step 5: Divide the total from Step 4 by the contribution margin per unit: $40,000 / $10 = 4,000 units.
Step 6: Conclude that the company must sell 4,000 units to achieve the target profit.
Break-even analysis – Understanding how fixed costs, variable costs, and contribution margin relate to the number of units needed to achieve a specific profit.
Contribution margin – The amount each unit contributes to covering fixed costs and generating profit.
Target profit calculation – Calculating the number of units needed to cover both fixed costs and achieve a desired profit.
