Question

Ferkil Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $65,000 per year, and the company must sell 6,500 units to break even.
If the company has a target profit of $15,000, sales in units must be _____.

Answer 1

Answer:

8,000 units

Explanation:

Given that,

Selling price = $25.00 per unit

Total fixed expenses = $65,000 per year

Break even sales in units = 6,500

Target profit = $15,000

Break-even sales in dollar value:

= Break even sales in units × Selling price per unit

= 6,500 × $25.00 per unit

= $162,500

Break-even Point = Fixed Costs ÷ Contribution Margin per Unit

$162,500 = $65,000 ÷ Contribution Margin per Unit

Contribution Margin per Unit = $65,000 ÷ $162,500

                                                = $0.4 per unit

Sales amount:

= (Fixed costs + Target profit) ÷ Contribution margin per unit

= ($65,000 + $15,000) ÷ $0.4 per unit

= $200,000

Therefore,

Sales in units = Sales in amount ÷ Selling price per unit

                      = $200,000 ÷ $25

                      = 8,000 units