Question

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

Answer 1

(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