Question

Ferkil Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $33,000 per year, and the company must sell 5,500 units to break even. If the company has a target profit of $12,000, sales in units must be: o 7,000 units o 5,980 units o 7,500 units o 6,820 units

Answer 1

SP	25
Fixed cost	33000
Break even units	5500
Target profit	12000
Target sale	?
Break even units=	Fixed cost/contribution per unit
Contribution per unit=	Fixed cost/break even units
=	33000/5500
	6
Contribution margin ratio	=	Contribution Margin/ Selling price
		6/25*100
		24.00
		24%
Sales to achieve target sales	=	(Fixed cost+Target Profit)/Contribution margin ratio
	=	(33000+12000)/(.24)
	=	187500
Target units		Sales to achieve target sales/selling price
		187500/25
		7500
Hence, answer is 7500 units

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