The average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500. If operating profits of $900 are desired, a sales volume of 2,500 units is necessary.

Question

Quizplus · Accepted Answer

To achieve an operating profit of $900, the contribution margin per unit ($0.60 - $0.36 = $0.24) must cover both the fixed costs and the desired profit. The required sales volume is calculated as (Fixed Costs + Desired Profit) / Contribution Margin per Unit = ($1,500 + $900) / $0.24 = 10,000 units, not 2,500 units.

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