Question

Variable costs of production $50 per unit Variable costs of sales and administration $25 per unit Fixed costs of production $100,000 per year Fixed costs of sales and administration $50,000 per year Assuming that the product is sold for $100 per unit, how many units must be produced and sold if the operating income is to be $25,000?

Answer 1

Answer:

Number of units to be produced and sold= 7,000 units

Explanation:

Giving the following information:

Variable costs of production $50 per unit

Variable costs of sales and administration $25 per unit

Fixed costs of production $100,000 per year

Fixed costs of sales and administration $50,000 per year

Selling price= $100 per unit

Desired profit= $25,000

To calculate the number of units to be produced and sold, we need to use the break-even point formula:

Break-even point in units= (fixed costs + desired profit)/ contribution margin per unit

Fixed costs= (100,000 + 50,000)= 150,000

Unitary variable cost= (50 + 25)= $75

Break-even point in units= (150,000 + 25,000) / (100 - 75)

Break-even point in units= 7,000 units