Question

Fern Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $50,000 per year, and the company must sell 5,000 units to break even. If the company has a target profit of $15,500, sales in units must be:

Answer 1

Answer:

Sales unit to achieve target profit =6,550 units

Explanation:

Break-even point is the level of activity that achieves no profit or loss. At this level profit is zero because the the total revenue is equal to total cost.

The break-even point is calculated as  

Break -even in units = total general fixed cost/(selling price - variable cost)

ley represent tah variable cost per unit with letter "y"

5,000 = 50,000 / (25 - y)

cross multiply

5000× (25 - y) = 50,000

125000  - 5000 y = 50,000

collect like terms

125,000 - 50,000 = 5000 y

75000  = 5,000y

divide both sides by 5,000

y = 75,000/5000 = 15

Variable cost per unit = 15

Sales units to achieve target profit = Fixed cost + target profit/(selling price - variable cost per unit)

Sales unit to achieve target profit

= (50,000 + 15,500)/(25-15)

= 6,550

Sales unit to achieve target profit =6,550 units