Question

McoLawn Ltd manufactures a single product, an ecologically designed electronic lawn-mower, which they sell for £40. The variable costs of the lawn-mower are as follows: Fixed costs are £140,000. McoLawn Ltd. have budgeted profits for the coming year at £120,000. How many lawn-mowers must McoLawn Ltd. sell in order to reach budgeted profit levels? Group of answer choices

Answer 1

Answer: 20,000 lawn mowers

Explanation:

The formula for calculating the number of lawn mowers needed to reached the budgeted profit levels is:

= (Fixed costs + Budgeted profit) / Contribution margin

Contribution margin = Selling price - Variable cost

= 40 - (14 + 8 + 5)

= 40 - 27

= $13

Number of lawn-mowers required:

= (140,000 + 120,000) / 13

= 20,000 lawn mowers