The following data are for Jay Robert Company. Breakeven sales revenue $250,000
ID: 2499833 • Letter: T
Question
The following data are for Jay Robert Company.
Breakeven sales revenue $250,000
Selling price per unit $10
Contribution margin ratio 75%
Calculate the number of units that must be sold to generate net income of $50,000.
120,000 units
18,333 units
40,000 units
95,000 units
31,667 units
120,000 units
18,333 units
40,000 units
95,000 units
31,667 units
Explanation / Answer
To calculate the number of units that must be sold to generate a net income of $50,000, we need to calculate the value of fixed costs with the use of following formula:
Fixed Costs = Breakeven Sales Revenue*Contribution Margin Ratio
The number of units can be calculated with the use of following formula:
Number of Units = (Desired Profit + Fixed Costs)/Contribution Margin Per Unit
Where Contribution Margin Per Unit = Selling Price - Variable Cost
Variable Cost = (1-Contribution Ratio)*Selling Price
_________
Solution:
Using the information provided in the question, we get,
Fixed Costs = 250,000*75% = $187,500
Desired Units = (50,000 + 187,500)/(10 - (1-75%)*10) = 31,667 units (which is Option D)
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