Question

A company has a unit contribution margin of $50, fixed costs of $15,000 and a target profit of $20,000 after-tax. If the tax rate is 20% the company must sell units in order to earn the target profit. (Enter your answer as a whole number.)

Answer 1

Answer:

The company must sell 800 units in order to earn the target.

Explanation:

This question requires us to calculate number of units required to be sold in order to acheive target profit. The answer can be calculated using simple break even calculation methodology.

To find number of units required to be sold we will divide sum of fixed cost and pre tax profit with contribution per unit.

Requires Sales = (Fixed Cost + Pre tax profit)/ Unit contribution

                         = (15,000+ (20,000/80%))/ 50 = 800 units