Kelvin Co. produces and sells socks. Variable costs are budgeted at $4 per pair, and fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair.
The sales units required for Kelvin Co. to make a before-tax profit (πB) of $12,000 are:

Question

Quizplus · Accepted Answer

The contribution margin per unit is calculated as follows:

$6 selling price - $4 variable cost = $2 contribution margin per unit

To make a before-tax profit of $12,000, we need to generate enough total contribution margin to cover the fixed costs plus the desired profit:

$12,000 + $90,000 = $102,000

To calculate the required sales units, divide the total required contribution margin by the contribution margin per unit:

$102,000 ÷ $2 contribution margin per unit = 51,000 units

Therefore, the correct answer is D) 51,000 units.

Kelvin Co Produces and Sells Socks