Watson Limited has the following cost estimates: variable cost per unit is $22, total fixed costs are $64 000 and the projected sales price is $30 each. The new accountant suggests that fixed costs can be reduced by $6 000. If so, how many units must be sold to produce a profit of $80 000?

Question

Quizplus · Accepted Answer

To find the number of units needed to achieve a profit of $80,000, first calculate the contribution margin per unit: $30 (sales price) - $22 (variable cost) = $8. Adjusted fixed costs are $64,000 - $6,000 = $58,000. The required profit is $80,000. The total amount to cover is $58,000 (fixed costs) + $80,000 (profit) = $138,000. Divide this by the contribution margin per unit: $138,000 / $8 = 17,250 units.

Watson Limited Has the Following Cost Estimates: Variable Cost Per