Question

A company desires to sell a sufficient quantity of products to earn a profit of $280000. If the unit sales price is $16, unit variable cost is $12, and total fixed costs are $800000, how many units must be sold to earn net income of $280000?

a) 168,750 units
b) 90,000 units
c) 112,500 units
d) 67,500 units

Answer 1

Break-even point in units= 270,000 units

Step-by-step explanation:

Giving the following information:

Desired profit= $280,000. The unit sales price is $16, the unit variable cost is $12, and the total fixed costs are $800,000.

To calculate the number of units required, we need to use the break-even point formula. We will include the desired profit:

Break-even point in units= (fixed costs + desired profit)/ contribution margin per unit

Break-even point in units= (800,000 + 280,000) / (16 - 12)

Break-even point in units= 270,000 units

To prove it:

Sales= 270,000*16= 4,320,000

Variable cost= 270,000*12= (3,240,000)

Contribution margin= 1,080,000

Fixed costs= (800,000)

Net operating income= 280,000