Question

A recent income statement of McClennon Corporation reported the following data:

Units Sold8,000
Sales Revenue$9,600,000
Variable Costs6,000,000
Fixed Costs2,600,000

If the company desired to earn a target profit of $1,270,000, it would have to sell:
a. 5,778 units.
b. 8,600 units.
c. 10,160 units.
d. 11,908 units.
e. an amount other than those above.

Answer 1

The correct answer is option b.

Step-by-step explanation:

The number of units of output sold is 8,000 .

The sales revenue is $9,600,000 .

The variable costs are $6,000,000 .

The fixed costs are $2,600,000.

The price of the product

=
`(Sales\ Revenue)/(Q)`

=
`(9,600,000)/(8,000)`

= $1,200

The average variable cost is

=
`(TVC)/(Q)`

=
`(6,000,000)/(8,000)`

= $750

Profit = TR - TC

Profit =
`Price\ *\ Q - (AVC\ *\ Q )\ +\ TFC)`

$1,270,000 = $1,200Q - $750Q - $2,600,000

$3,870,000 = $450Q

Q =
`(3,870,000)/(450)`

Q = 8,600 units