If a firm with $49,000 in fixed costs breaks even on 7,000 units, how many units must the firm sell to earn $30,000 in operating profit?
A) 30,000 units
B) 11,286 units
C) 15,824 units
D) There is not enough information to determine the unit sales required.

Question

Quizplus · Accepted Answer

To find the number of units needed to earn a specific operating profit, we first need to determine the contribution margin per unit. Since the firm breaks even at 7,000 units, the contribution margin per unit covers the fixed costs when 7,000 units are sold. The fixed costs are $49,000, so the contribution margin per unit is $49,000 / 7,000 units = $7 per unit. To earn $30,000 in operating profit, the firm needs to cover its fixed costs and the desired profit, totaling $49,000 + $30,000 = $79,000. Dividing this total by the contribution margin per unit ($7) gives the number of units needed: $79,000 / $7 per unit = 11,286 units.

If a Firm with $49,000 in Fixed Costs Breaks Even