Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 55 percent and total fixed costs of $6,875. How many units must be sold in order to obtain a before-tax profit of $12,000?
A)480 units
B)240 units
C)600 units
D)839 units

Question

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per unit:

Sale price = $50
Variable cost ratio = 55%
Contribution margin = Sale price - (Sale price x Variable cost ratio) 
Contribution margin = $50 - ($50 x 0.55) = $22.50

Next, we can use the contribution margin per unit to calculate the break-even point in units:

Break-even point = Total fixed costs / Contribution margin per unit 
Break-even point = $6,875 / $22.50 = 305.56 ≈ 306 units

To calculate the units needed for a before-tax profit of $12,000, we can use the following formula:

Profit = (Contribution margin per unit x Units) - Total fixed costs 
$12,000 = ($22.50 x Units) - $6,875 
$12,000 + $6,875 = $22.50 x Units 
$18,875 / $22.50 = Units 
839.44 ≈ 839 units

Therefore, the answer is D, 839 units.

Biscuit Company Sells Its Product for $50