Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 24

Williams&Williams Co. produces plastic spray bottles and wants to earn a before-tax profit of $100,000 next quarter. Variable costs are $0.50 per bottle, fixed costs are $500,000, and the selling price is $1 per bottle. How many bottles must the company sell to meet this goal?

Step 1 of 2

The CVP analysis is used to evaluate the revenue volume required to attain an anticipated level of profit. In order to calculate the desired profit, we need to plan for revenue, cost, and accounting. The desired pretax profit is calculated as follows:

Where

= Desired profit

F = Fixed cost

p = Selling price per unit

v = Variable cost per unit

Q = Number of units sold