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Target profit Beard Company sells a product for $15 per unit. The variable cost is $10 per unit, and fixed costs are $1,750,000. Determine (a) the break-even point in sales units and (b) the sales units required for the company to achieve a target profit of $400,000.
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Target profit
Beard Company sells a product for $15 per unit. The variable cost is $10 per unit, and fixed costs are $1,750,000. Determine (a) the break-even point in sales units and (b) the sales units required for the company to achieve a target profit of $400,000.
(a)
Calculate the break-even point in sales units.
Explanation of Solution
Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:
Determine the break-even point in sales units.
Working note (1):
Determine the contribution margin per unit
(b)
Calculate the sales units if the company desires a target profit of $400,000.
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