Question:
The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by $0.50 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,700?
$
Sales (13,100 units × $20 per unit) 262,000
Variable expenses 131,000
Contribution margin 131,000
Fixed expenses (146,000)
Net operating loss $(15,000)
Answer and its explanation:
The company has to find the number of units at which the target profit is $4700.
So the formula for finding the number of units required to make a profit of $4700 is as under:
Number of Units = (Fixed Cost + Target Profit) / Contribution per unit .................EQ1
Now first of all we have to find the contribution per unit, which can be found from the following formula:
Contribution per unit = Total contribution / Total units sold
Here we have total contribution of $131,000 and total units of 13,100 units.
By putting values in the equation, we have:
Contribution per unit = $131,000 / 13,100 units = $10 per unit
Now we put this value in the Equation 1 to find the required number of units to be sold to achieve a profit of $4700.
Number of Units = ($146,000 + $4700) / $10 per unit = 15,070 units
So the required units that must be sold are 15,070 to achieve $4700 profit.
