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In: Accounting

Teton Inc sells its only product for 50 per unit Teton, Inc. sells its only product for $50 pe

Teton Inc sells its only product for 50 per unit


Teton, Inc. sells its only product for $50 per unit. Fixed expenses total $800,000 per year. Variable expenses are $1,000,000 when 40,000 units are sold. How many units must be sold to earn a net operating income of $75,000?

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Expert Solution

Units sales for desired profit   =   (Fixed cost + Target profit) / Contribution margin per unit

                                                  = ($800,000 + $75,000) /$25

                                                   = 875000 / 25

                                                    = 35,000 units

Working :

Contribution margin per unit =  Selling price per unit - Variable cost per unit

                                        = $50 - (1,000,000 /40,000)

                                         = $25

Therefore correct answer is  units required for desired operating profit = 35,000 units

Units sales for desired profit   =   (Fixed cost + Target profit) / Contribution margin per unit

Ramesh R answered 2 years ago
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