Question

The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC would like to realize a monthly profit of $50,000. How many units must they sell each month to realize this profit?

Answer 1

Answer:

5500 units per month must be sold to earn the required profit

Explanation:

The target profit is the amount of profit that a business wants to earn. To calculate the target profit, we can use the break even analysis and include the factor for target profit under its formula and calculate the units and the dollar sales needed to earn the target profit.

In this case, the target profit is $50000 per month.

The break even in units = Fixed cost / contribution margin per unit

Contribution margin per unit = selling price per unit - variable cost per unit

To calculate units required for target profit, we will add the target profit to the fixed cost and divide by the contribution margin per unit

Target profit units = (fixed cost + target profit) / Contribution margin per unit

So,

Contribution margin per unit = 20 - 10 = $10 per unit

Target profit units = (5000 + 50000) / 10

Target profit units = 5500 units per month