Baker Company sells its product for £60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of £9,000. How many units must be sold in order to obtain a before-tax profit of £12,000?
A) 350 units
B) 584 units
C) 875 units
D) 333 units

Question

Quizplus · Accepted Answer

To calculate the unit sales required to achieve a before-tax profit of £12,000, we need to use the formula:

Unit sales = (Fixed costs + Before-tax profit) / (Unit contribution margin)

The unit contribution margin is the selling price minus the variable cost per unit, which in this case is:

Unit contribution margin = £60 x (1 - 0.40) = £36

Substituting the values given:

Unit sales = (£9,000 + £12,000) / £36 = 584 units

Therefore, the best choice is B.

Baker Company Sells Its Product for £60