Question

How many units would I need to sell to make a 30% profit for year 2 and a 40% profit for year three

Year 1 year 2 year 3

Sales Units 2500 2750 2900

sales Price Unit $150.00 $150.00 $150.00

REVENUE $375,000 $412,500 $435,000

Variable Costs:

Direct Materials $20.00 $20.50 $26.01

Direct Labor $17.15 $17.60 $19.22

Variable OH $2.50 $2.53 $2.55

Fixed Costs:

Rent 80,000 $80,000 $80,000

Supervision 200,000 $205,000 $210,250

Mixed Costs:

Utilites-Fixed 20,000 20,000 20,000

Utilities-Variable $2.50 $2.50 $2.50

Total Costs:

Variable cost per unit $42.15 $43.13 $50.28

Fixed Costs $300,000 $305,000 $310,250

Contribution Margin $107.85 $106.87 $99.72

72% 71% 150%

Breakeven:

Sales Units $2,781.64 $2,853.93 $3,111.21

Sales Revenue 375,000 412,500 435,000

Margin of Safety: $0 $0 $0

Answer 1

No. of units to sell to make a profit of 30% for year-2:

Sales of Year-2 = $412,500; Required Profit = $412,500 x 30% = $123,750

Sales (units) to acheive profit of 30% =

Sales ($) = $150 x 4,011.8836 = $601,782.54 or $601,782

(or)

Sales ($) to acheive profit of 30% =

No. of units to sell to make a profit of 40% for year-3:

Sales of Year-3 = $435,000; Required Profit = $435,000 x 40% = $174,000

Sales (units) to acheive profit of 40% =

Sales ($) = $150 x 4,856.097 = $728,414.55

(or)

Sales ($) to acheive profit of 40% =

The above calculations are based on the formula:

Contribution Margin for Year 2 = ($106.87)/($150.00) = 71.2467%

Contribution Margin for Year 3 = ($99.72)/($150.00) = 66.48%

Hope the answer is helpful!!