ITPEC FE Subject A April 2026 Question 59

18,200 units — divide fixed costs plus the target profit by the contribution margin per unit.

• •Fixed costs: 130,000 + 10,000 = 140,000
• •Variable cost per unit: 3 + 4 = 7
• •Contribution margin per unit: 17 − 7 = 10
• •Units required: (140,000 + 42,000) ÷ 10 = 182,000 ÷ 10 = 18,200

Answer (b)

Why not others:
- (a) 14,000 — 140,000 ÷ 10, the break-even volume; it covers the fixed costs but earns no profit
- (c) 26,000 — 182,000 ÷ 7, dividing by the variable cost per unit instead of the contribution margin
- (d) 26,200 — a decoy close to (c); it follows from neither calculation

Key rule: Group every fixed item together and every per-unit item together first. The divisor is always selling price minus variable cost per unit — the amount each sale contributes toward fixed costs and profit.

AI-generated — may contain errors