Question

A product sells for $125, variable costs are $80, and fixed costs are $45,000. If the selling price can be increased by 20% with a similar increase in variable costs, how many fewer units would have to be sold to earn $300,000? (Round the answer to the nearest unit.)

Answer 1

The number of units must be sold to earn $300,000: 6389 units

Step-by-step explanation:

The selling price after increasing = $125 + $125 x 20% = $150

Variable costs after The selling price increasing = $80 + $80 x 20% = $96

The number of units must be sold to meet the target profit figure are calculated by using following formula:

The number of units must be sold = (Total fixed cost + Targeted profit) / Contribution margin per unit.

In there:

Contribution margin per unit = Sales price – Variable cost per unit = $150 - $96 = $54

The number of units must be sold = ($45,000 + $300,000)/$54 = 6389 units