Question

Nanyang Ltd produces a single product. The selling price is​ £50 per unit and the variable costs are​ £30 per unit. The annual fixed costs of the business are​ £4,000. The business aims to make​ £10,000 profit during the forthcoming year. How many units must be sold to achieve this​ target?

A. 200 units
B. 700 units
C. 500 units
D. 280 units

Answer 1

To meet the target profit of £10,000 with a single product selling at £50 per unit, variable costs £30 per unit, and fixed costs of £4,000, Nanyang Ltd must sell 700 units.

Step-by-step explanation:

To achieve the target profit for Nanyang Ltd, which produces a single product, we must calculate the number of units that need to be sold. Given that the selling price per unit is £50 and the variable cost is £30 per unit, we can determine the contribution margin per unit (selling price - variable costs) which is £50 - £30 = £20 per unit. The fixed costs are £4,000, and the target profit is £10,000, so the total amount needed to cover fixed costs and target profit is £4,000 + £10,000 = £14,000. Dividing this amount by the contribution margin per unit £20 gives us the number of units that must be sold: £14,000 / £20 = 700 units.

Therefore, the correct answer is B. 700 units must be sold to achieve the target profit of £10,000.