Arrow Barnett Limited manufactures wheelie bins, each of which sells for £55.50.Variable labour costs of manufacture are £6.50 and variable raw materials costs are £5.25 per bin.Fixed costs for the 20X5 financial year are budgeted at £305 700 and the directors have set a target profit figure for the year of £115 000. How many wheelie bins must the company sell in 20X5 in order to reach the target profit (to the nearest whole unit)?

Question

Quizplus · Accepted Answer

Total fixed costs = £305,700
Target profit = £115,000
Total contribution margin needed = Target profit + Total fixed costs
= £305,700 + £115,000
= £420,700

Contribution margin per bin = Selling price per bin - Variable costs per bin
= £55.50 - (£6.50 + £5.25)
= £43.75

Number of bins to be sold = Total contribution margin needed ÷ Contribution margin per bin
= £420,700 ÷ £43.75
= 9616.57

Rounding off to the nearest whole unit, the company must sell 9617 wheelie bins in 20X5 to reach the target profit. Therefore, the answer is C.

Arrow Barnett Limited Manufactures Wheelie Bins, Each of Which Sells