Our company sells a product for $120 per unit. Variable costs are $90 per unit and fixed costs are $4,000. The company expects to sell 200 units this year. How many units must we sell to earn a profit of $2,000?Group of answer choices200250300340
Question
Our company sells a product for 90 per unit and fixed costs are 2,000?Group of answer choices200250300340
Solution
To calculate the number of units needed to earn a profit of $2,000, we first need to determine the contribution margin per unit. This is calculated by subtracting the variable cost per unit from the selling price per unit.
So, Contribution Margin per unit = Selling Price per unit - Variable Cost per unit = 90 = $30 per unit
Next, we calculate the total fixed costs plus the desired profit, which is 2,000 = $6,000.
Finally, we divide the total fixed costs plus desired profit by the contribution margin per unit to find out how many units need to be sold.
So, Number of units to be sold = Total Fixed Costs + Desired Profit / Contribution Margin per unit = 30 = 200 units
Therefore, to earn a profit of $2,000, the company must sell 200 units.
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