Question

Pure Water Products produces a water filter that attaches to the faucet and
cleans all water that passes through the faucet. During 2019, 38,000 units
of the water filter were sold to customers. Information related to the water
filter product appears below:

Contribution margin ..............  $28.30 per unit
Variable costs ...................  $43.20 per unit
Fixed costs (in total) ...........  $833,220

Calculate the number of units of the water filter that Pure Water Products
needed to sell in 2019 in order to earn a net income equal to 18% of sales.

Answer 1

Answer- Number of units sold to earn equals to 18% of sales= 43724 units.

Explanation- No. of units sold to achieve target profit = (Fixed costs+ Target profit)/ Contribution margin per unit

= ($833220+$489060)/$28.30 per unit

= $1322280/$28.30 per unit

= 46724 units

Target profit = (Selling price per unit*No. of units sold)*18%

= ($71.50 per unit*38000 units)*18%

= $489060

Where = Contribution margin per unit = Selling price per unit-Variable cost per unit

$28.30 per unit = Selling price per unit-$43.20 per unit

Selling price per unit = $43.20 per unit+$28.30 per unit

= $71.50 per unit