Question

A firm with $50,000 in fixed assets breaks even on unit sales of 10,000, how many...

A firm with $50,000 in fixed assets breaks even on unit sales of 10,000, how many units must the firm sell to earn $20,000 in operating profits?
           


A. A)   less than 12,000 units            

B. B)   12,000 units            

C. C)   more than 12,000 units            

D. D)   There is not enough information to determine the unit sales required.

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Homework Answers

Answer #1

The Answer of the above question is point C that is more than 12,000 units.

First From the above given question, we need to calculate contribution per unit i.e (Sales Price per unit - Variable cost per unit),

Break even point per unit = Fixed cost / Contribution per unit

10,000 = $50,000 / Contribution per unit

Contribution per unit = $50,000/10,000

Contribution per unit = $ 5 per unit.

Then,

The firm wants to earn 20,000 Profit. therefore,

Contribution in amount = Fixed cost + Operating profit

Contribution in amount = $50,000 + $20,000

Contribution in amount = $70,000

If contribution amount is $ 70,000 and contribution in unit is = $ 5 per unit. then

Sales unit = $70,000/$5

Then,

Sales Unit = 14,000 units.

If the firm wants operating profit amounting to $ 20,000 then, the firm needs to sell 14,000 units.

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