Question

In 2019, X Company's profits after taxes were $200,000. In 2020, the selling price was expected to be $40.50, the variable cost per unit was expected to be $24.30, and total fixed costs were expected to be $190,000. Assuming a tax rate of 38%, how many units must X Company sell in 2020 in order to earn profit of $209,000?

Answer 1

Step 1:- Calculate the contribution margin per unit

Contribution margin per unit = Sales price per unit - Variable cost per unit

Contribution margin per unit = $40.50 - $24.30

Contribution margin per unit = $16.2

Step 2:-

The formula to calculate the number of units to sell is:-

=Fixed Costs + (Target After tax profit/1-tax rate)/Contribution Margin per unit

=[$190,000 + ($209,000/$1-0.38)]/$16.2

=[$190,000 + $337,097]/$16.2

=$527,097/$16.2

=32,536.8519

=32,537 units(Rounded)