John Anderson Company Below is an income statement for John Anderson Company:
Refer to John Anderson Company. If the unit sales price for John Anderson's sole product was $10, how many units would it have needed to sell to produce a profit of $40,000?

Question

John Anderson Company Below is an income statement for John Anderson Company:
 Refer to John Anderson Company. If the unit sales price for John Anderson's sole product was $10, how many units would it have needed to sell to produce a profit of $40,000?

Quizplus · Accepted Answer

To find the answer, we need to use the contribution margin ratio.

Contribution margin ratio = (Sales - Variable Expenses) / Sales

From the income statement, we can calculate the contribution margin as:

Contribution margin = Sales - Variable expenses
Contribution margin = $300,000 - $180,000
Contribution margin = $120,000

Contribution margin ratio = $120,000 / $300,000
Contribution margin ratio = 0.4 or 40%

We know that the company wants to make a profit of $40,000.

Profit = (Sales - Variable expenses - Fixed expenses)

$40,000 = ($10*Q - 0.6*$10*Q - $220,000)

$40,000 = $4*Q - $220,000

$260,000 = $4*Q

Q = 65,000

Therefore, the company needs to sell 28,000 units to produce a profit of $40,000.

John Anderson Company Below Is an Income Statement for John