ITPEC FE Morning October 2019 Question 78
ITPEC FE Morning October 2019 — Question 78 of 80
Break-Even Analysis with Target Profit — calculate units needed to reach a specific profit.
Given: price = 17, fixed costs = 130,000 + 10,000 = 140,000, variable cost/unit = 4 + 3 = 7, target profit = 42,000.
Formula: Units = (Fixed Costs + Target Profit) / (Price − Variable Cost per Unit)
- •Contribution margin per unit:
17 − 7 = 10 - •Required units:
(140,000 + 42,000) / 10 = 182,000 / 10 = 18,200
Verification: revenue = 18,200 × 17 = 309,400, total cost = 140,000 + 18,200 × 7 = 267,400, profit = 309,400 − 267,400 = 42,000 ✓
Why not others:
- (a) 10,200 — uses only fixed admin costs (130,000) without R&D, and likely miscalculates the margin
- (b) 14,200 — uses fixed costs only (140,000 / 10) without adding the target profit
- (c) 16,200 — an intermediate miscalculation, possibly omitting part of variable costs
Key rule: Units for target profit = (Total Fixed Costs + Target Profit) / Contribution Margin per Unit.
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