Product X sells for $35 per unit and has related variable costs of $25 per unit.The fixed costs of producing product X are $65,000 per month.How many units of product X must be sold each month to earn a monthly operating income of $85,000?

Question

Quizplus · Accepted Answer

Let's use the formula to calculate the breakeven point first:
Breakeven point = Fixed costs / (Price per unit - Variable costs per unit)
Breakeven point = $65,000 / ($35 - $25) = $65,000 / $10 = 6,500 units
To earn a monthly operating income of $85,000 we need to sell additional units:
Additional units = (Target operating income + Fixed costs) / (Price per unit - Variable costs per unit)
Additional units = ($85,000 + $65,000) / ($35 - $25) = $150,000 / $10 = 15,000 units
Therefore, we need to sell a total of 15,000 + 6,500 = 21,500 units
The closest answer choice is C) 15,000 units.

Product X Sells for $35 Per Unit and Has Related