# Target profit Scrushy Company sells a product for $150 per unit. The variable cost is$110 per unit, and fixed costs are $200,000. Determine (a) the break-even point in sales units and (b) the break-even point in sales units if the company desires a target profit of$50,000.

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 21, Problem 21.4BPE
Textbook Problem

## Target profitScrushy Company sells a product for $150 per unit. The variable cost is$110 per unit, and fixed costs are $200,000. Determine (a) the break-even point in sales units and (b) the break-even point in sales units if the company desires a target profit of$50,000.

Expert Solution

(a)

To determine

Target Profit: It refers to the desired amount of profit that a company expects to achieve by the end of an accounting period after it reaches its break-even point. Thus, the company needs to compute the required sales to earn the target profit. The formula to calculate the required sales to earn the target profit is as follows:

Sales(units) =FixedCosts+TargetProfitUnitContributionMargin

To determine: the break-even point in sales units.

### Explanation of Solution

Determine the break-even point in sales units.

Fixed cost =$200,000 Contribution margin per unit =$40 per unit (1)

Break-evenâ€‰pointâ€‰inâ€‰Sales(units)Â =Fixedâ€‰CostsContributionâ€‰Marginâ€‰perâ€‰unit=$200,000$40=5,000â€‰units

Working note:

Determine the contribution margin per unit

Expert Solution

(b)

To determine
the break-even point if the company desires a target profit of \$50,000.

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