The Wiltmore Co. would like to add a new product to complete their lineup. They want to know how many units they must sell to limit their potential loss to their initial investment. What is this quantity if their fixed costs are $12,000, the depreciation expense is $2,500, and the contribution margin is $1.30? (Round to whole units)
A) 9,231 units
B) 9,903 units
C) 10,002 units
D) 10,629 units
E) 11,154 units

Question

Quizplus · Accepted Answer

To limit the potential loss to the initial investment, the company needs to sell enough units to cover the fixed costs and depreciation expense. The contribution margin is the amount of each unit sold that contributes to covering these costs. So, the number of units needed is the total fixed costs and depreciation expense divided by the contribution margin:(12,000 + 2,500) / 1.30 = 9,230.77 unitsRounding to the nearest whole unit, the company needs to sell 9,231 units to limit their potential loss to their initial investment.