Use the following to answer the questions below.
A proposal for implementing a new product line has an annual fixed cost of $60,000, variable cost of $35 per unit of output, and revenue (selling price) of $55 per unit of output.
-Refer to the instruction above. What volume of output will be necessary for an annual profit of $60,000?
A) 2,000 units
B) 3,000 units
C) 6,000 units
D) 20,000 units

Question

Quizplus · Accepted Answer

We can use the formula: 
Profit = (Revenue per unit x Volume of output) - (Variable cost per unit x Volume of output) - Fixed cost
We need to find the volume of output that will result in a profit of $60,000:
$60,000 = ($55 x Volume) - ($35 x Volume) - $60,000
Solving for Volume, we get: 
Volume = $120,000/($55 - $35) = 6,000 units
Therefore, we need to produce 6,000 units to obtain an annual profit of $60,000.

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