XYZ Manufacturing produces car parts. The company has a variable cost per unit o

Question

XYZ Manufacturing produces car parts. The company has a variable cost per unit of $100 and fixed costs of $100,000. The company sells each car part for about $125. Recently, the company is considering increasing its advertising by $50,000 in order to sell more car parts. How many additional parts must the company sell in order to justify the increased advertising costs?

a. 2,000 units
b. 4,000 units
c. 6,000 units
d. Cannot be determined from the information provided.

PLEASE SHOW YOUR WORKOUT FOR ANSWERS TO A - C.....
THANK YOU!

Explanation / Answer

Cont pu = SP pu - VC pu = $125-$100 = $25 pu So For Addl FC of $50,000, Addl Units must contribute $50,000 in cont. SO Addl No of Units = Addl FC/Cont pu = $50,000/$25 = 2000 units ...Ans (a)

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