Kehler Corporation wished to market a new product for $2.00 a unit.Fixed costs to manufacture this product are $100,000.The contribution margin is 40 percent.How many units must be sold to realize net income of $100,000 from this product?

Question

Quizplus · Accepted Answer

First, we need to calculate the unit contribution margin, which is 40% of the selling price:

Unit Contribution Margin = $2.00 x 40% = $0.80

Next, we need to calculate the number of units required to cover the fixed costs and earn the desired net income:

Net Income = Sales - Variable Costs - Fixed Costs

$100,000 = (Units Sold x $2.00 x 40%) - (Units Sold x $0.80) - $100,000

$100,000 = Units Sold x ($0.80)

Units Sold = $100,000 / ($0.80) = 125,000

Therefore, Kehler Corporation must sell 125,000 units to earn a net income of $100,000.

Kehler Corporation Wished to Market a New Product for $2