Question

Given the following information:

Selling Price (per unit): $10,000

Variable Costs (per unit): $7,000

Fixed Costs: $200,000

Required

Each of these are separate situations:

1. What is the break-even point in total sales in dollars?
2. How many units need to be sold to make a profit of $20,000?
3. How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000?
4. How many units would they need to sell if they wanted to double profit, if the current number of units sold is 200?

Answer 1

( A)

What is the break-even point in total sales in dollars

$ 666,666.67

Explanation:

1) CM.Per Unit: = $ 10,000 - $ 7000 = $3000

2) CM Ratio: $ 3000 ÷ $ 10,000 = 30%

A) Breakeven Point

= ( Fixed Expense)/CM Ratio

= $ 200,000 ÷ 30%

$ 666,666.67

(B)

How many units need to be sold to make a profit of $20,000

73.33 unit

= (Fixed Exp. + Target Income) ÷ CM Per Unit

=( $ 200,000 + $ 20,000) ÷ 3000

= 73.333 Unit

(C)

How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000

90 unit

= ( Fixed Exp + Target Income ) ÷ CM per unit

= ( $ 250,000 + 20,000) ÷$ 3000

= 90 Unit

(D)

How many units would they need to sell if they wanted to double profit, if the current number of units sold is 200?

333.33 Units

1) Current Profit:

= $3000(200) - $200,000 = $ 400,000

2) Double Profit:

= $ 400,000 ×2 = $ 800,000

3) ( Fixed Exp + Target Income ) ÷ CM per Unit

=( 200,000 + $ 800,000 ) ÷ $ 3000

=333.33 Units