Porter Productions sells video tapes for $15.00 each. Their variable cost per unit is $9.00. In addition, they incur $180,000 in fixed costs each year. How many units will Porter have to produce and sell in order to generate an operating income (revenues minus expenses)of $54,000?
A)9,000 units
B)18,000 units
C)30,000 units
D)39,000 units
E)54,000 units

Question

Quizplus · Accepted Answer

To find the number of units needed to generate a specific operating income, we can use the formula for calculating the break-even point and adjust it for the desired profit. The formula for the break-even point in units is Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Here, the desired operating income is $54,000, so we add this to the fixed costs to find the total amount that needs to be covered by sales.Fixed Costs = $180,000Desired Operating Income = $54,000Total Amount Needed = Fixed Costs + Desired Operating Income = $180,000 + $54,000 = $234,000Selling Price per Unit = $15Variable Cost per Unit = $9Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit = $15 - $9 = $6Number of Units = Total Amount Needed / Contribution Margin per Unit = $234,000 / $6 = 39,000 units

Porter Productions Sells Video Tapes for $15