Question

Merlot, Inc. has fixed costs of $200,000, sales price of $50, and variable cost of $30 per unit. How many units must be sold to earn profit of $50,000?

Multiple Choice

• 2,500

• 12,500

• 20,000

• 10,000

Answer 1

Selling price is $50 per unit charged by Merlot Inc

Merlot Inc variable cost per unit is $30

Per unit contribution margin of Merlot Inc

= 50 - 30 = $20

$20 is the contribution margin per unit earn by Merlot Inc.

Merlot Units sold to earn Targeted profit

= (Target profit + fixed costs) / contribution margin per unit

Merlot Inc, units sold to earn Target profit of $50,000

= (50,000 + 200,000) / 20 = 12,500 units

12,500 units are needed to sold to achieve Targeted profit of $50,000. Option 12,500 is Correct.