Question

Data concerning Bedwell Enterprises Corporation's single product appear below: Selling price per unit $ 220.00; Variable expense per unit $ 97.50; Fixed expense per month $ 448,090. The unit sales to attain the company's monthly target profit of $31,000 is closest to: (Do not round intermediate calculations.) (a) 3,658 (b) 2,178 (c) 4,914 (d) 3,911

Answer 1

The answer is d. 3911

Step-by-step explanation:

First, we obtain the contribution margin, wih the formula Selling price per unit minus variable expense per unit. So, the contribution margin per unit is
`220 - 97.5 = 122.5`.

Next, knowing how much each unit contributes to cover the fixed costs, we can calculate how many units do we need to pay the fixed expenses. This is called "break even point" or BEP. The formula is Fixed Expenses / Contribution margin per unit. So, the BEP is
`448,090 / 122.5 = 3,657.88`.

With those two things, the final task is to calculate how many units we need, covered the fixed expenses, to achieve the company target profit. The formula is Target profit / Contribution margin per unit. So, the number of units is
`31,000 / 122.5 = 253.06`.

Finally, we add these two number, to obtain the total units needed to cover the fixed costs and achieve the target profit:
`3,657.88 + 253.06 = 3,910.64 = 3,911`