The Pierson Co. has the following unit and mix data: Do Dah Total
Unit sales price $5.00 $4.00
Unit contribution margin 0.75 1.20
Sales mix ($)80% 20%
Fixed costs $99,000
Target profit 24,750
How many units in total must be sold to earn the target profit?

Question

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per unit for the total mix (weighted average):

Contribution margin per unit = (80% x $0.75) + (20% x $1.20) = $0.84

To calculate the total units required to earn the target profit, we can use the following formula:

Target Profit = (Total Units x Contribution Margin per unit) - Fixed Costs

Substituting the values given in the question, we get:

$24,750 = (Total Units x $0.84) - $99,000

Total Units = ($24,750 + $99,000) / $0.84

Total Units = 144,375

Therefore, the best choice is D as it is the only option that gives the correct number of units required to earn the target profit.