Question

# Target Profit Outdoors Company sells a product for \$245 per unit. The variable cost is \$85...

Target Profit

Outdoors Company sells a product for \$245 per unit. The variable cost is \$85 per unit, and fixed costs are \$1,184,000.

Determine (a) the break-even point in sales units and (b) the sales units required for the company to achieve a target profit of \$355,200.

 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 \$355,200 units

(a) Break even point (units) = fixed cost / contribution margin (selling price - variable cost)

= \$1,184,000 / (\$245 - \$85) = \$1,184,000 / \$160 = 7400 units

(b) In order to achieve a profit of \$355,200 we need a contribution of = fixed cost + target profit = \$355,200 + \$1,184,000 = \$1,539,200

Contribution per unit = \$160

Therefore, unit sales to achieve the required profit = total required contribution / contribution margin per unit = \$1,539,200 / \$160 = 9620 units