Use the following information to answer questions
Reliable Furniture manufactures recliners selling for $500 each. Variable costs per unit are $175 for direct material, $125 for direct labor, $35 for variable production overhead, and $15 for variable selling and administrative costs. Annual fixed costs are $200,000 for production overhead and $100,000 for selling and administrative costs. The company applies fixed production overhead to recliners based on a capacity of 20,000 units per year.
-If the company wants to earn a before-tax profit of $600,000, how many recliners must be sold?

Question

Use the following information to answer questions 
Reliable Furniture manufactures recliners selling for $500 each. Variable costs per unit are $175 for direct material, $125 for direct labor, $35 for variable production overhead, and $15 for variable selling and administrative costs. Annual fixed costs are $200,000 for production overhead and $100,000 for selling and administrative costs. The company applies fixed production overhead to recliners based on a capacity of 20,000 units per year.
-If the company wants to earn a before-tax profit of $600,000, how many recliners must be sold?

Quizplus · Accepted Answer

To find the number of recliners needed to achieve a $600,000 profit, calculate the contribution margin per unit and use the formula: (Fixed Costs + Desired Profit) / Contribution Margin per Unit. Contribution Margin per Unit = Selling Price - Variable Costs = $500 - ($175 + $125 + $35 + $15) = $150. Total Fixed Costs = $200,000 + $100,000 = $300,000. Required Units = ($300,000 + $600,000) / $150 = 6,000 units.

Use the Following Information to Answer Questions