A group of venture investors is considering putting money into Lemma Books,which wants to produce a new reader for electronic books.The variable cost per unit is estimated at $250,the sales price would be set at twice the VC/unit,fixed costs are estimated at $750,000,and the investors will put up the funds if the project is likely to have an operating income of $500,000 or more.What sales volume would be required in order to meet this profit goal?
A)4,513
B)4,750
C)5,000
D)5,250

Question

Quizplus · Accepted Answer

To meet the profit goal of $500,000, we need to determine the total contribution margin required to cover the fixed costs and generate the desired profit.

Contribution margin = Sales Price - Variable Cost per unit 
Sales price = 2 x VC per unit = 2 x $250 = $500

Contribution margin = $500 - $250 = $250 per unit

Total contribution margin required = Fixed Costs + Operating Income 
Total contribution margin required = $750,000 + $500,000 = $1,250,000

Sales Volume required = Total Contribution Margin Required / Contribution Margin per Unit 
Sales Volume required = $1,250,000 / $250 per unit = 5,000 units

Therefore, the sales volume required to meet the profit goal is 5,000 units, and the best choice is option C.

A Group of Venture Investors Is Considering Putting Money into Lemma