Given the following information, how many units must be sold to achieve a profit
ID: 1101870 • Letter: G
Question
Given the following information, how many units must be sold to achieve a profit of $23,000? (Note that the units sold must account for total production costs (direct and overhead) plus desired profit.)
Direct labor hours: 0.4 hr / unit
Direct labor costs: $23 / hr
Direct materials cost: $4.5 / unit
Overhead costs: 100% of direct labor
Packaging and shipping: $2.1 / unit
Selling price: $29 / unit
Explanation / Answer
Hi,
Please find the detailed answer as follows:
If Packaging and Shipping is not taken as a Part of Cost of Production:
Number of Units to be Sold to achieve 23000 Profit = (Fixed Cost + Desired Profit)/Contribution Per Unit
Fixed Cost = 0 (since nothing has specified)
Contribution Per Unit = Selling Price Per Unit - Direct Material Cost Per Unit - Direct Labor Cost Per Unit - Overhead Cost Per Unit = 29 - 4.5 - 23*.40 - 100%*23*.40 = 6.10
Number of Units to be Sold to achieve 23000 Profit = (0 + 23000)/6.10 = 3770.29 Units (if we don't take packaging and shipping as a part of cost of production)
If Packaging and Shipping is taken as a Part of Cost of Production:
Contribution Per Unit = Selling Price Per Unit - Direct Material Cost Per Unit - Direct Labor Cost Per Unit - Overhead Cost Per Unit - Packaging and Shipping Cost Per Unit = 29 - 4.5 - 23*.40 - 100%*23*.40 - 2.10 = 4
Number of Units to be Sold to achieve 23000 Profit = (0 + 23000)/4 = 5750 Units (if we don't take packaging and shipping as a part of cost of production)
Thanks.
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