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If a product has a contribution margin of $50 and fixed costs of $10,000, how ma

Practice Questions

Q1
If a product has a contribution margin of $50 and fixed costs of $10,000, how many units need to be sold to achieve a target profit of $5,000?
  1. 300 units
  2. 200 units
  3. 150 units
  4. 100 units

Questions & Step-by-Step Solutions

If a product has a contribution margin of $50 and fixed costs of $10,000, how many units need to be sold to achieve a target profit of $5,000?
  • Step 1: Identify the contribution margin, which is $50.
  • Step 2: Identify the fixed costs, which are $10,000.
  • Step 3: Identify the target profit, which is $5,000.
  • Step 4: Add the fixed costs and the target profit together: $10,000 + $5,000 = $15,000.
  • Step 5: Divide the total from Step 4 by the contribution margin: $15,000 / $50 = 300.
  • Step 6: The result from Step 5 tells you that you need to sell 300 units to achieve the target profit.
  • Contribution Margin – The amount per unit that 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 a business 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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