Question

Lin Corporation has a single product whose selling price is $140 and whose variable expense is $70 per unit. The company’s monthly fixed expense is $31,600.

1. Using the equation method, determine for the unit sales that are required to earn a target profit of $8,300.

2. Using the formula method, determine for the unit sales that are required to earn a target profit of $10,000. (Round your answer to the nearest whole number.)

Answer 1

1.

( Unit sales x Selling price ) = ( Unit sales x Variable expense per unit ) + Fixed expenses + Target profit
( Unit sales * 140 ) = ( Unit sales x 70 ) + 31,600 + 8,300
Unit sales x 140 = Unit sales x 70 + 39,900
140 Unit sales - 70 Unit sales = 39,900   
70 Unit sales = 39,900
Unit sales = 39,900 / 70

= 570 units

2.

Selling price per unit = $140

Variable expense per unit = $70

Contribution margin per unit = Selling price per unit- Variable expense per unit

= 140-70

= $70

Units sales = (Fixed expense + Target profit)/Contribution margin per unit

= (31,600+10,000)/(140-70)

= 41,600/70

= 594 units

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