Techtron, Inc.has a ﬁxed cost of $225,000 for the production of ﬂashlights.Estimated sales are 150,000 units.A before-tax proﬁt of $125,000 is desired by the CFO.If Techtron sells the ﬂashlights for $5.00 each, what unit contribution margin is required to maintain the proﬁt target?

Question

Quizplus · Accepted Answer

The unit contribution margin is calculated as follows:Unit contribution margin = (Selling price per unit - Variable cost per unit)We are given that the selling price per unit is $5.00 and the fixed cost is $225,000. We are also given that the desired before-tax profit is $125,000. Therefore, the variable cost per unit can be calculated as follows:Variable cost per unit = (Fixed cost + Desired before-tax profit) / Estimated salesVariable cost per unit = ($225,000 + $125,000) / 150,000 unitsVariable cost per unit = $2.33Therefore, the unit contribution margin is:Unit contribution margin = $5.00 - $2.33Unit contribution margin = $2.67