Urban Incorporated 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 } & 1,200 & 60 \
\text { Engineering hours } & 52&1,500 \

\end{array}$

$\begin{array}{lc}
\text { Other data: } & &\
\text { Total fixed costs (traditional) } & \$ 600,000 \
\text { Total fixed costs (ABC) } & \$ 300,000 \
\text { Unit selling price } & \$ 60
\end{array}$
- How many units need to be sold to produce a before-tax profit of $80,000 using ABC?

Question

Urban Incorporated 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 } & 1,200 & 60 \
\text { Engineering hours } & 52&1,500 \

\end{array}$

$\begin{array}{lc}
\text { Other data: } & &\
\text { Total fixed costs (traditional) } & \$ 600,000 \
\text { Total fixed costs (ABC) } & \$ 300,000 \
\text { Unit selling price } & \$ 60
\end{array}$ 
- How many units need to be sold to produce a before-tax profit of $80,000 using ABC?

Quizplus · Accepted Answer

To determine the number of units that must be sold to achieve a before-tax profit of $80,000, we need to use the following formula: 
Target Profit = Total Cost + Target Profit ÷ Unit
Plugging in the given information, we have:
$80,000 = (11ea7e3a_e45d_8acc_ab1f_2314f710b87d_TB3984_00 + $80,000) ÷ Unit
Solving for Unit, we get:
Unit = (11ea7e3a_e45d_8acc_ab1f_2314f710b87d_TB3984_00 + $80,000) ÷ $80,000
Using ABC (Activity-Based Costing), we can determine the Total Cost as:
Total Cost = 14,000 units x $120 = $1,680,000
Now we can plug in the values to get:
Unit = ($1,680,000 + $80,000) ÷ $80,000 = 21
Therefore, to achieve a before-tax profit of $80,000, Urban Incorporated needs to sell 13,250 units (11ea7e3a_e45d_8acc_ab1f_2314f710b87d_TB3984_00 ÷ 21 = 13,250)

Urban Incorporated Had the Following Information - How Many Units Need to Be Sold to Produce