A group of venture investors is considering putting money into Lemma Books,which wants to produce a new reader for electronic books.The variable cost per unit is estimated at $250,the sales price would be set at twice the VC/unit,or $500,and fixed costs are estimated at $750,000.The investors will put up the funds if the project is likely to have an operating income of $500,000 or more.What sales volume would be required in order to meet the minimum profit goal? (Hint: Use the break-even formula,but include the required profit in the numerator.)
A)4,513
B)4,750
C)5,000
D)5,250
E)5,513

Question

Quizplus · Accepted Answer

To find the sales volume required to meet the minimum profit goal, we can use the break-even formula but include the required profit in the numerator.

Break-even formula:

Sales volume = Fixed costs / (Sales price per unit - Variable cost per unit)

However, since the investors want to achieve a profit of $500,000 or more, we need to adjust the formula:

Sales volume = (Fixed costs + Required profit) / (Sales price per unit - Variable cost per unit)

Substituting the given values:

Sales volume = (750,000 + 500,000) / (500 - 250)

Sales volume = 1,250,000 / 250

Sales volume = 5,000

Therefore, the sales volume required to meet the minimum profit goal of $500,000 or more is 5,000 units. The best choice is C).

A Group of Venture Investors Is Considering Putting Money into Lemma