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Fixed costs are $120,000, the price is $80 per unit and the variable cost is $30 per unit. The owner also wants a target profit of $50,000. How many units must be sold?
A1,000 units
B2,400 units
C4,000 units
D3,400 units
Answer & Solution
Correct answer: D. 3,400 units
1. A target profit is added into the numerator as though it were one more fixed cost.
2. The numerator becomes $120,000 plus $50,000, which is $170,000.
3. Unit contribution margin is $80 minus $30, which is $50.
4. $170,000 divided by $50 gives 3,400 units per month.
5. The extra 1,000 units above the 2,400 breakeven earn exactly the $50,000 target at $50 each.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.3.2 Breakeven Point with Target Profit_
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