Question

Ferkil Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $33,000 per year, and the company must sell 5,500 units to break even. If the company has a target profit of $12,000, sales in units must be:

Answer 1

Selling Price = $25.00
Fixed Expenses = $33,000
Breakeven Point in unit = 5,500
Target Profit = $12,000

Breakeven Point in unit = Fixed Expenses / Contribution Margin per unit
5,500 = $33,000 / Contribution Margin per unit
Contribution Margin per unit = $6.00

Required Sales in units = (Fixed Expenses + Target Profit) / Contribution Margin per unit
Required Sales in units = ($33,000 + $12,000) / $6.00
Required Sales in units = $45,000 / $6.00
Required Sales in units = 7,500