Final answer:
The correct formula to calculate the sales volume needed to achieve a target profit is (Target profit + Fixed expenses)/Unit contribution margin, which takes into account the unit contribution margin and the sum of the target profit and fixed expenses. Option A is correct answer.
Step-by-step explanation:
The formula used to calculate the sales volume needed to achieve a target profit can be determined by considering the costs and revenues associated with the production and sale of goods. In business and accounting, the accounting profit is calculated by subtracting explicit costs, which include fixed and variable expenses and depreciation, from total revenues. We use the concept of unit contribution margin, which is the selling price per unit minus the variable cost per unit, to determine how much each unit contributes to covering fixed expenses and achieving a target profit.
A key factor in setting financial targets and pricing strategies is understanding the relationship between costs and output. This includes knowledge of average profit, which is the profit margin, and how economies of scale can affect costs. The correct formula for finding the sales volume needed to reach a certain profit goal is A. (Target profit + Fixed expenses)/Unit contribution margin.
In this formula, both the target profit and fixed expenses are added together and then divided by the unit contribution margin. This gives the quantity of units that must be sold to achieve the set profit target, assuming that variable costs and selling prices remain constant and the firm faces constant returns to scale. Option A is the correct choice for calculating the sales volume to meet a target profit goal.