Answer:
4,000.
Explanation:
The Cost, volume, and profit (CVP) analysis helps manager to evaluate capital projects. It is conducted by companies to determine how much of sales must be made to achieve break-even and target profits. This analysis works on several assumptions, these are:
- Selling price per unit is constant.
- Variable cost per unit is also constant.
- Fixed cost remains constant.
- The stocks produced will must be sold.
To conduct CVP analysis, a contribution income statement is prepared. This is a one of the internal reports prepared by management and the equation to it is as follows:
(SP * Quantity) - (VC * Quantity) = CM - Fixed Cost = Operating Income
where
SP = Selling price
VC = Variable cost
CM = Contribution margin
The above given equation can be used for break-even analysis. To do so, simply solve it for "Quantity". Likewise, it can also be used to determine how much units must be sold to achieve a desired/target profit. The focus here is to determine the quantity that must be sold to achieve a target profit of $6,000. Simply put the given information in the equation and find the quantity;
⇒ (6 * Quantity) - (3 * Quantity) - 6,000 = 6,000
OR Quantity (6 - 3) = 6,000 + 6,000
OR Quantity = 12,000 / 3
⇒ Quantity = 4,000.
So, 4,000 units must be sold to achieve a target profit of $6,000.
