A group of venture investors is considering putting money into Lemma Books, whic

Question

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, or $500, and fixed costs are estimated at $750,000. 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 the minimum profit goal? (Hint: Use the break-even formula, but include the required profit in the numerator.)

a. 4,750
b. 5,000
c. 4,513
d. 5,250
e. 5,513

Explanation / Answer

$250 profit per unit = 500,000

500,000/250 = x
x = 2000 units

2000 * 500 = $1,000,000 in sales

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