ITPEC FE Subject A April 2024 Question 57
ITPEC FE Subject A April 2024 — Question 57 of 60
Corporate & Legal — break-even / target profit calculation.
Given: selling price $17, variable costs $3+$4=$7, fixed costs $130k+$10k=$140k, target profit $42k.
Apply the target profit formula:
Units = (Fixed costs + Target profit) / (Selling price - Variable costs per unit)
Units = (140,000 + 42,000) / (17 - 7) = 182,000 / 10 = 18,200
Why not others:
- (a) 14,000 — ignores interest expense in fixed costs, uses only 130,000
- (c) 26,000 — divides by selling price 7 instead of contribution margin 10
- (d) 26,200 — similar error with wrong denominator or partial fixed costs
Key rule: Contribution margin = Selling price − Variable cost per unit. Units = (Fixed costs + Target profit) / Contribution margin.
AI-generated — may contain errors
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