Sanderson sells a single product for $50 that has a variable cost of $30.Fixed costs amount to $5 per unit when anticipated sales targets are met.If the company sells one unit in excess of its break-even volume,profit will be:

Question

Quizplus · Accepted Answer

To find the break-even volume, we need to use the formula:

Break-even volume = (fixed costs)/(price - variable cost)

In this case, the fixed costs are $5 per unit, the price is $50, and the variable cost is $30.

Break-even volume = ($5) / ($50 - $30) = 0.2 units

So, we need to sell at least 0.2 units to break even.

If we sell one unit in excess of the break-even volume, we will have sold a total of 1.2 units.

Revenue from 1.2 units = ($50/unit) x (1.2 units) = $60

Total variable cost = ($30/unit) x (1.2 units) = $36

Total fixed cost = ($5/unit) x (1.2 units) = $6

Profit = Revenue - Variable cost - Fixed cost

Profit = $60 - $36 - $6 = $18

Therefore, if the company sells one unit in excess of its break-even volume, the profit will be $18, which is closest to choice (B) $20.

Sanderson Sells a Single Product for $50 That Has a Variable