Question

Phan Company has not reported a profit in five years. This year the company would like to narrow its loss to $7,500. Assuming its selling price is $36.50 per unit and its variable costs per unit are $24, how many units must be sold to achieve its target given that total fixed costs are $60,000? A. 2,188 B. 1.439 C. 4,200 D. 1800

Answer 1

Answer:

Units to be sold to achieve the target = 4200 units

so correct option is C. 4,200

Explanation:

given data

loss = $7,500

selling price = $36.50

costs per unit = $24

total fixed costs = $60,000

to find out

how many units must be sold to achieve its target

solution

we find here first Contribution Margin Per Unit that is express as

Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit    .....................1

put here value we get

Contribution Margin Per Unit = $36.50 - $24

Contribution Margin Per Unit = $12.50

so now Required Contribution Margin will be

Required Contribution Margin = Fixed Cost -  loss

Required Contribution Margin = $60,000 - $7,500

Required Contribution Margin = $52,500

so Units to be sold to achieve the target will be

Units to be sold to achieve the target = $\frac{required\ contribution\ margin}{contribition\ margin\ per\ unit}$

Units to be sold to achieve the target = $\frac{52500}{12.50}$

Units to be sold to achieve the target = 4200 units

so correct option is C. 4,200