Final answer:
To determine the unit sales needed to earn a target profit, one must consider the selling price, variable costs, and fixed costs. The provided scenario shows a loss when selling five units at $25 each due to revenues being lower than costs. Additional information is needed to answer the student's initial question about reaching a $5 million profit target.
Step-by-step explanation:
The student's question is related to determining the unit sales required to earn a target profit in a company. The scenario provided details a loss situation for a company that produces and sells a single product. When the company sells five units at $25 per unit, the total revenue is $125. However, the total costs are $130, resulting in a loss of $5. This example demonstrates that if the price per unit is lower than the average cost per unit, the company will experience losses, in this case of $1 per unit. Furthermore, since the marginal cost of the fifth unit is $30, which exceeds the price of $25 per unit, this unit is detracting from profits rather than adding to them, hence it would be beneficial for the company to decrease production.
To answer the initial question regarding the unit sales required to earn a target profit of 5 million dollars, additional information about the selling price per unit, variable cost per unit, and total fixed costs would be needed. This is typically solved using the break-even analysis formula or a profit equation that considers both variable and fixed costs.