Question

Lin Corporation has a single product whose selling price is $120 per unit and whose variable expense is $80 per unit. The company’s monthly fixed expense is $50,000. Required: 1. Calculate the unit sales needed to attain a target profit of $10,000. 2. Calculate the dollar sales needed to attain a target profit of $15,000.

Answer 1

Answer:

1) Break-even point=  1,500 units

2) Break-even point (dollars)= $195,000

Explanation:

Giving the following information:

The selling price is $120 per unit and variable expense is $80 per unit. The company’s monthly fixed expense is $50,000.

1) To calculate the break-even point in units, we need to use the following formula:

Break-even point= (fixed costs + desired profit)/ contribution margin

Break-even point= (50,000 + 10,000)/ (120 - 80)

Break-even point=  1,500 units

2) Now, we need to calculate the break-even point in dollars:

Break-even point (dollars)= (fixed costs + desired profit)/ contribution margin ratio

Break-even point (dollars)= 65,000/ (40/120)= $195,000