Question

Target Profit

Outdoors Company sells a product for $185 per unit. The variable cost is $70 per unit, and fixed costs are $563,500.

Determine (a) the break-even point in sales units and (b) the sales units required for the company to achieve a target profit of $101,430.

a. Break-even point in sales units		units
b. Break-even point in sales units required for the company to achieve a target profit of $101,430		units

Answer 1

a. Break-even point in sales units = Fixed Costs / Sales price per unit – Variable cost per unit

Fixed Costs = $563,500

Sales price per unit – Variable cost per unit

= $185 - $70

= $115

Break-even point in sales units = $563,500 / $115

= 4900 units

b. Break-even point in sales units required for the company to achieve a target profit of $101,430

= (Fixed Cost + Profit) / (Sales price per unit – Variable cost per unit)

= ($563,500 + $101,430) / ($185 - $70)

= $664,930 / $115

= 5782 units

Break-even point in sales units required for the company to achieve a target profit of $101,430 is 5782 units.