Jamie Quinn, a sole proprietor, has the following projected figures for next year: $\begin{array} { l }
\text {Selling price per unit }&\$150.00\
\text {Contribution margin per unit }&\$45.00\
\text {Total fixed costs }&\$630,000\
\end{array}$
What selling price per unit is needed to obtain a before-tax profit of $270,000 at a volume of 4,000 units?

Question

Jamie Quinn, a sole proprietor, has the following projected figures for next year: $\begin{array} { l  }
 \text {Selling price per unit }&\$150.00\
 \text {Contribution margin per unit }&\$45.00\
 \text {Total fixed costs }&\$630,000\
\end{array}$
 What selling price per unit is needed to obtain a before-tax profit of $270,000 at a volume of 4,000 units?

Quizplus · Accepted Answer

To find the required selling price per unit, calculate the total revenue needed to cover both the fixed costs and the desired profit. Total revenue needed = Total fixed costs + Desired profit = $630,000 + $270,000 = $900,000. Divide this by the volume of 4,000 units to find the selling price per unit: $900,000 / 4,000 = $225. However, this is the revenue per unit needed to cover costs and profit, not the selling price. The contribution margin per unit must also cover the fixed costs and profit, so the selling price must be higher. The correct calculation involves adjusting the contribution margin to achieve the desired profit, leading to a selling price of $330.00.

Jamie Quinn, a Sole Proprietor, Has the Following Projected Figures