Question

Liliac Company sells a single product. The selling price of the product is $300 per unit. Variable cost is $180 per unit. Fixed cost is $360,000 per period. Currently, the company is selling 5,000 units of the product.

Assume that the income tax rate is 20%. If the company wants to make a profit of $480,000 after tax, how many units of the products should be sold?

	A.	5,500 units
	B.	6,000 units
	C.	7,000 units
	D.	8,000 units

Answer 1

Answer : D = 8,000 Units

>> Unit Contribution margin = Selling price - Variable cost per unit

>> Unit Contribution margin = $ 300 - $ 180

>> Unit Contribution margin = $ 120.

>> Income before tax = $ 480,000 / ( 100 - 20 ) %

>> Income before tax= $ 600,000.

>> Target Sales units = ( Fixed cost + Desired profit ) / Unit Contribution margin

>> Target Sales units = ( $ 360,000 + $ 600,000 ) / $ 120

>> Target Sales units = 8,000 Units