A product is priced to sell for $12 with average variable costs of $8. The company expects to earn a profit of $400,000 with its total fixed costs of $120,000. What is the minimum number of units that must be sold in order to reach this target return?
A) 80,000
B) 120,000
C) 130,000
D) 400,000

Question

Quizplus · Accepted Answer

To achieve a profit of $400,000 with total fixed costs of $120,000, the total contribution margin needed is $400,000 + $120,000 = $520,000. The contribution margin per unit is the selling price minus the variable cost, which is $12 - $8 = $4. Therefore, the minimum number of units needed to reach the target return is $520,000 / $4 = 130,000 units.

A Product Is Priced to Sell for $12 with Average