Question

A company provided the following data:Selling price per unit $60Variable cost per unit 40Total fixed costs 400,000How many units must be sold to earn a profit of $40,000?

a. 2,000b. 20,000c. 22,000d. 8,500e. 23,333

Answer 1

Option (C) is correct.

Step-by-step explanation:

Sale - Variable cost = Contribution Margin

Contribution Margin - Fixed cost = Profit

(Selling Price – Variable cost) × No of units sold = Target profit + Fixed costs

($60 - $40) × No of units sold = $40,000 + $400,000

($20) × No of units sold = $440,000

No. of units sold = 22,000 units

In order to earn a profit of $40,000, the company must sell 22,000 units.