Question

A product is priced to sell for $12 with average variable costs of $8. The company expects to earn a profit of $400,000 with its total fixed costs of $120,000. The minimum number of units that must be sold in order to reach this target return is:__________.

Answer 1

30,000

Step-by-step explanation:

Fixed Costs ÷ (Price - Variable Costs) = Breakeven Point in Units

Answer 2

minimum no of unit sold to reach target return = 130000 units

Step-by-step explanation:

given data

sell price = $12

average variable costs = $8

profit = $400,000

total fixed costs = $120,000

to find out

minimum number of units that must be sold in order to reach this target return

solution

first we get here Contribution per unit that is express as

Contribution = Selling price - Variable cost .............1

put here value we get

Contribution = $12 - $8

Contribution = $4

so minimum no of unit sold to reach target return is

minimum no of unit sold to reach target return = ( Profit + Fixed cost) ÷ Contribution ............2

put here value we get

minimum no of unit sold to reach target return =
`(400000+120000)/(4)`

minimum no of unit sold to reach target return = 130000 units