Question

Mickey's Mousetraps wants to calculate how many of its "Magic Mouse Trappers" it needs to sell in order to realize a profit objective of $30,000. The product sells for $20, it costs $5 per unit to make, and the company's fixed costs are $30,000.

a) 1,000 units
b) 2,000 units
c) 3,000 units
d) 4,000 units

Answer 1

To achieve a profit of $30,000, Mickey's Mousetraps must sell 4,000 units of "Magic Mouse Trappers", calculated by including fixed costs and subtracting the variable cost from the selling price.

Option 'C' is the correct.

Step-by-step explanation:

To calculate how many "Magic Mouse Trappers" Mickey's Mousetraps needs to sell to achieve a profit of $30,000, we can use the formula for profit which is Profit = Total Revenue - Total Costs. Here, Total Revenue is the number of units sold multiplied by the selling price per unit, and Total Costs are the sum of fixed costs and variable costs (the cost to make each unit).

The company sells each unit for $20 and each unit costs $5 to make. Therefore, the contribution margin per unit (selling price - variable cost) is $20 - $5 = $15. With fixed costs of $30,000, we can now set up the equation for profit:

Profit = (Selling Price - Variable Cost per Unit) x Number of Units Sold - Fixed Costs

Inserting the profit target and known values: $30,000 = ($20 - $5) x Number of Units Sold - $30,000

To solve for the Number of Units Sold:

1. Add $30,000 (fixed costs) to both sides: $60,000 = $15 x Number of Units Sold
2. Divide both sides by $15 to find the Number of Units Sold: Number of Units Sold = $60,000 / $15
3. Calculate the result: Number of Units Sold = 4,000

Therefore, to achieve a profit of $30,000, Mickey's Mousetraps must sell 4,000 units of their "Magic Mouse Trappers".