K Inc. sells a single product that has the following production per unit costs: direct material, $15; direct labor, $4; variable overhead, $6; and fixed overhead, $2. The fixed overhead cost was calculated using 100,000 units of annual sales and production. Selling costs are $1 per unit and $179,200 of fixed costs. K's product sells for $50 per unit. If K Inc. wants to earn a pre-tax profit of $62,544, how many units must be sold?

Question

Quizplus · Accepted Answer

To find the number of units needed to achieve the desired pre-tax profit, calculate the contribution margin per unit: Selling price ($50) - Variable costs ($15 + $4 + $6 + $1) = $24. Fixed costs are $179,200 + (100,000 units x $2 fixed overhead per unit) = $379,200. The required units = (Fixed costs + Desired profit) / Contribution margin per unit = ($379,200 + $62,544) / $24 = 18,406 units.

K Inc Sells a Single Product That Has the Following Production