Using the same product (contribution £20 a unit, fixed costs £180,000), how many units must be sold to earn a profit of £60,000?
Answer and explanation
Correct answer: B. 12,000 units
- Step 1: Required contribution = fixed costs + target profit = £180,000 + £60,000 = £240,000.
- Step 2: Units = £240,000 / £20 = 12,000.
Answer
12,000 units.
Why not the others: 3,000 divides only the target profit by the contribution per unit. 9,000 is the breakeven point, which gives no profit. 15,000 would be needed for a profit of £120,000.
Practise more Management decision making.
Free questions with an explanation for every one, and full timed ICAEW ACA Certificate Level mock tests.
More Management decision making questions
- A product sells for £50 and has a variable cost of £30. Fixed costs are £180,000. What is the breakeven point in units?
- Using the same product (price £50, variable cost £30, fixed costs £180,000), actual sales are 11,000 units. What is the margin of safety as…
- Machine hours are limited to 1,100. Product A has a contribution of £24 per unit, uses 3 hours and has demand of 200 units. Product B has £3…
- A project costs £95,000 now and will produce cash flows of £30,000, £50,000 and £40,000 at the end of years 1, 2 and 3. The discount rate is…
- A project costs £120,000 and gives cash flows of £30,000, £50,000, £60,000 and £40,000 at the end of years 1 to 4. What is the payback perio…
- A project costs £200,000 and has a residual value of £20,000. Average annual accounting profit is £36,000. Using average investment, what is…