Question

Assume the following information:Selling price per unit $200Contribution margin ratio 50%Total fixed costs $275,000How many units must be sold to generate a profit of $50,000?
a. 3,250 unitsb. 2,500 unitsc. 2,750 unitsd. 4,000 units

Answer 1

Answer:

Level of sales (dollars) to earn profit of $50,000

= Fixed cost + desired profit

 Contribution margin ratio

= $275,000 + $50,000

             0.5

= $650,000

Number of units to earn profit of $50,000

= Level of sales

  Selling price

= $650,000

       $200

= 3,250 units

The correct answer is A

Explanation:

First and foremost, the level of sales (dollars) to earn $50,000 profit is calculated, which is the ratio of fixed cost and desired profit to contribution margin ratio. Then, we will calculate the number of units to be sold in order to earn $50,000 profit by dividing the level of sales by selling price.