Blinson Manufacturing has the following product information available:
$\begin{array}{ll}
\text { Sales price } & \$75 \text { per unit } \
\text { Variable costs } & \$ 25 \text { per unit } \
\text { Before-tax profit }& \$ 180 \text { 000 }
\end{array}$
If Blinson has calculated that it needs to sell 20 000 units in order to earn an after-tax target profit of $126 000,what were Blinson's fixed costs?

Question

Quizplus · Accepted Answer

We can use the contribution margin approach to solve this problem.

Let X be the number of units sold.

Revenue = $45.50 X 
Variable costs = $28.25 X 
Contribution margin = $17.25 X

We want to find the fixed costs.

Let F be the fixed costs.

After-tax profit = $126,000 
Before-tax profit = $126,000 / (1-0.3) = $180,000

We can set up the following equation:

$180,000 = $17.25 X - $28.25 X + F

Solving for X, we get:

X = 20,000

Substituting X into the equation, we get:

$180,000 = $17.25 (20,000) - $28.25 (20,000) + F

F = $820,000

Therefore, the fixed costs are $820,000.

The answer is (C).

Blinson Manufacturing Has the Following Product Information Available If Blinson Has Calculated That It Needs to Sell 20