A company has fixed costs of $320,000 and a contribution margin per unit of $15. if the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ?

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Viola

Business

29 December, 22:16

A company has fixed costs of $320,000 and a contribution margin per unit of $15. if the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ?

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Caitlyn · Answer 1

24,000 units

Contribution margin is selling price minus variable costs. The remaining amount goes to fixed costs, and anything left after that is pre-tax income.

So we find the total contribution margin (CM per item times number of items) and then subtract the fixed costs. In this case, we can do this by solving for x:

15x-320,000 = 40,000 (add 320,000 to both sides)

15x = 360,000

x=24,000