Question

In: Accounting

Hill & Scott Company sells a product for $20. Variable costs are $15 per unit, and...

Hill & Scott Company sells a product for $20. Variable costs are $15 per unit, and total fixed costs are $7,000. How many units must be sold by Hill & Scott to earn a profit of $1,000?

Solutions

Expert Solution

  • All working forms part of the answer
  • Step 1: Find Contribution margin per unit

A

Sale Price per unit

$                    20.00

B

Variable cost per unit

$                    15.00

C = A - B

Contribution margin per unit

$                       5.00

  • Step 2: Find total Contribution margin required to earn target profits of $ 1,000

A

Fixed Cost

$              7,000.00

B

Target Profits

$              1,000.00

C = A+B

Total Contribution margin required to earn target income

$              8,000.00

  • Step 3: Final Answer

A

Total Contribution margin required to earn target income

$              8,000.00

B

Contribution margin per unit

$                       5.00

C = A/B

No. of units required to be sold to earn target profits

                        1,600 = ANSWER

  • Answer: No. of units to be sold = 1,600 units

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