Thomas Company had the following information: $\begin{array}{lcc}
\underline{\text { Activity Driver}}&
\underline{\text { Unit Variable Cost }}&\underline{\text { Level of Activity Driver}}\
\text { Units sold } & \$ 20 & -- \
\text { Setups } & 1,000 & 80 \
\text { Engineering hours } & 60 &2,000 \
\text { Other data: } & &
\end{array}$

$\begin{array}{lc}
\text { Total fixed costs (traditional) } & \$ 800,000 \
\text { Total fixed costs (ABC) } & \$ 400,000 \
\text { Unit selling price } & \$ 40
\end{array}$
-How many units need to be sold to produce a before-tax profit of $120,000 using ABC?

Question

Thomas Company had the following information: $\begin{array}{lcc}
 \underline{\text { Activity Driver}}&
 \underline{\text { Unit Variable Cost  }}&\underline{\text { Level of Activity Driver}}\
\text { Units sold } & \$ 20 & -- \
\text { Setups } & 1,000 & 80 \
\text { Engineering hours } & 60 &2,000 \
\text { Other data: } & &
\end{array}$

$\begin{array}{lc}
\text { Total fixed costs (traditional) } & \$ 800,000 \
\text { Total fixed costs (ABC) } & \$ 400,000 \
\text { Unit selling price } & \$ 40
\end{array}$ 
-How many units need to be sold to produce a before-tax profit of $120,000 using ABC?

Quizplus · Accepted Answer

To find out the number of units required to generate a before-tax profit of $120,000, we need to use the following formula: 
Profit = (Sales - Variable Costs) - Fixed Costs 
Let's assume that the selling price per unit is $25, the variable cost per unit is $15, and the fixed costs are $600,000. 
So, 
Profit = ($25 x N - $15 x N) - $600,000 = $10N - $600,000 
where N is the number of units sold.

Now, we need to solve for N: 
$120,000 = $10N - $600,000 
$720,000 = $10N 
N = 72,000 / 10 = 7,200

Therefore, Thomas Company needs to sell 36,000 units (7,200 / 0.2) to generate a before-tax profit of $120,000.

Therefore, the best choice is B.

Thomas Company Had the Following Information -How Many Units Need to Be Sold to Produce a Driver}}