A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $105. The new production line would manufacture up to 825,000 units at a variable cost of $64 per unit. Fixed costs would be $1,515,000. Variable selling and administration expenses would amount to $18. Determine the units needed to earn operating income of $4,000,000.

A) 241,571
B) 166,276
C) 527,685
D) 239,783
E) 313,913

Question

Corwyn Asbury · Accepted Answer

Final Answer : D, Explanation :   To find the units needed to earn an operating income of $4,000,000, we use the formula for calculating the break-even point in units, but adjust it to include the desired profit:  Units = Fixed Costs + Desired Profit Selling Price per Unit − Variable Cost per Unit − Variable Selling and Admin Expenses per Unit  	ext{Units} = \frac{	ext{Fixed Costs} + 	ext{Desired Profit}}{	ext{Selling Price per Unit} - 	ext{Variable Cost per Unit} - 	ext{Variable Selling and Admin Expenses per Unit}}  Units = Selling Price per Unit − Variable Cost per Unit − Variable Selling and Admin Expenses per Unit Fixed Costs + Desired Profit ​  Given:- Fixed Costs = $1,515,000- Desired Profit = $4,000,000- Selling Price per Unit = $105- Variable Cost per Unit = $64- Variable Selling and Admin Expenses per Unit = $18  Units = 1 , 515 , 000 + 4 , 000 , 000 105 − 64 − 18  	ext{Units} = \frac{1,515,000 + 4,000,000}{105 - 64 - 18}  Units = 105 − 64 − 18 1 , 515 , 000 + 4 , 000 , 000 ​ Units = 5 , 515 , 000 23  	ext{Units} = \frac{5,515,000}{23}  Units = 23 5 , 515 , 000 ​ Units = 239 , 782.61  	ext{Units} = 239,782.61  Units = 239 , 782.61  Rounding to the nearest whole number, we get 239,783 units.

Definitions

Learning Objectives

Learning Objectives

Related questions