Question

A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a profit of $10,000. The sales level in units to achieve the desired profit is _________ units.

Answer 1

Answer:

= 5,200

Explanation:

Let the sales units be represented by variable X

Profit = Revenues -COGS -Fixed costs

Revenues = Selling price *X = $5X

COGS = $2.5X

Fixed costs = $3,000

Desired profit = $10,000

Therefore;

10,000 = 5X -2.5X - 3,000

Add 3,000 on both sides;

10,000 +3,000 = 2.5X

13,000 = 2.5X

Divide both sides by 2.5 to solve for X;

13,000/2.5 = X

X = 5,200

Therefore, the sales level in units is 5,200

Answer 2

The sales level in units to achieve the desired profit is 5200 units.

Explanation:

In order to evaluate the desired profit volume, the desired profit is simply added and divides it up by unit contribution to the fixed price.

Formula: $\frac{ \text { (Fixed cost + Desired Profit) }}{\text{ Unit Contribution }}$

To Calculate Unit contribution: Price – Variable cost = 5.00 – 2.50 = $2.5

Now calculate desired profit value, $\rightarrow \frac{(\ 3000+\ 10,000)}{(\ 5.00-\ 2.50)}$

$\Rightarrow \frac{13,000}{2.5}=5200 \text{ units }$

The profit is 5200 units.