Question

Jeff Co. sells its giant cheese wheels for $36 per wheel. The contribution margin ratio is 75% and total fixed costs are $270,000.

How many wheels must Jeff sell in order to generate a profit of $54,000?

a)12,000 wheels

b)9,000 wheels

c)36,000 wheels

d)2,000 wheels

e)43,200 wheels

f)11,500 wheels

Answer 1

Level of sales in dollars in order to generate a profit of $54,000 Fixed cost + Target profit/Contribution per unit $270,000 + $54,0000/0.75

= $432,000

Number of units to be sold

= Level of sales/Selling price

= $432,000/$36

= 12,000 units

The correct answer is A

Step-by-step explanation:

In this case, we need to calculate level of sales in dollars, which is fixed cost plus target profit divided by contribution margin ratio. Then, we will calculate no of units to be sold, which is the level of sales divided by selling price.