Lance is interested in entering the catfish farming business.He estimates if he enters this business,his fixed costs would be $50,000 per year and his variable costs would equal 30 percent of sales.If each catfish sells for $2,how many catfish would Lance need to sell to generate a profit that is equal to 10 percent of sales?
A)40,000
B)41,667
C)35,000
D)No level of sales can generate a 10 percent net return on sales.

Question

Quizplus · Accepted Answer

Let's assume that x is the number of catfish that Lance needs to sell to generate a profit. 
His total costs would then be:

Total Costs = Fixed Costs + Variable Costs

Variable Costs = 0.3 * Sales

Since each catfish sells for $2, the total revenue Lance would earn from selling x catfish would be:

Revenue = Price * Quantity = 2x

His profit would then be:

Profit = Revenue - Total Costs

To generate a 10% profit, Lance needs to have:

Profit = 0.1 * Revenue

Substituting the above equations, we get:

0.1 * 2x = 2x - (50,000 + 0.3 * 2x)

Solving for x, we get x = 41,667.

Therefore, Lance needs to sell 41,667 catfish to generate a profit that is equal to 10 percent of sales.

The answer is (B).

Lance Is Interested in Entering the Catfish Farming Business