Question

The Zin Company wants to achieve a profit of $126,000. They currently sell 5,000 units at a price of $72 per unit with variable costs of $32 per unit; fixed costs total $84,000. In order to achieve their target profit without increasing the selling price, the company will need to ___.

Answer 1

Answer : In order to achieve their target profit without increasing the selling price ,the company will need to Increase sales by 250 units.

Explanation:

Number of units to be sold to earn the target profit =

(Fixed cost + Target profit)/Contribution Margin per unit

=

(84000+126000)/40

=

210000/40

=

5250

selling price per unit

72

variable cost per unit

32

Contribution Margin per unit =

selling price per unit - variable cost per unit

=

72 - 32

=

40

Fixed cost

84000

Target profit

126000

current sales in units

5000

So, sales must be increased by 250 units (5250-5000) to achieve the target profit.

sales (5250*72)

378000

variable cost (5250*32)

168000

contribution(sales - variable cost)

210000

Fixed cost

84000

Target Profit

126000