ExpertHard1 markMultiple Choice
CPA · Question 11 · Area I: Business Analysis
A company sells a single product for $50. Variable costs are $30 per unit. Fixed costs are $100,000. The company wants to earn a target operating income of $40,000. How many units must be sold to achieve this target?
A company sells a single product for $50. Variable costs are $30 per unit. Fixed costs are $100,000. The company wants to earn a target operating income of $40,000. How many units must be sold to achieve this target?
Answer options:
A.
5,000 units
B.
7,000 units
C.
2,800 units
D.
2,000 units
How to approach this question
Formula: (Fixed Costs + Target Profit) / Contribution Margin per Unit.
Full Answer
B.7,000 units✓ Correct
CM = $20. Required Contribution = Fixed Costs ($100,000) + Target Profit ($40,000) = $140,000. Units = $140,000 / $20 = 7,000.
Common mistakes
Forgetting to include fixed costs; using selling price instead of contribution margin in the denominator.
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