Question

If a firm with $49,000 in fixed costs breaks even on unit sales of 7,000, how many units must the firm sell to earn $30,000 in operating profit?

A. 30,000 units

B. 11,286 units

C. 15,824 units

D. There is not enough information to determine the unit sales required.

Answer 1

To earn a $30,000 operating profit, the firm must sell 11,286 units, considering the fixed costs of $49,000 and a contribution margin of $7 per unit.

Step-by-step explanation:

When determining how many units must be sold to earn a specific operating profit, we need to examine the contribution margin per unit. Since the firm breaks even at 7,000 units with $49,000 in fixed costs, the contribution margin per unit can be calculated as $49,000 / 7,000 units = $7 per unit. To earn $30,000 in operating profit, the firm must cover its fixed costs and the desired profit, which equals $49,000 + $30,000 = $79,000. Dividing this total by the contribution margin per unit gives us $79,000 / $7 per unit = 11,286 units (rounded up).