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Target Profit Forest Company sells a product for $220 per unit. The variable cost is $90...

Target Profit

Forest Company sells a product for $220 per unit. The variable cost is $90 per unit, and fixed costs are $962,000.

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 $211,640.

a. Break-even point in sales units units
b. Break-even point in sales units if the company desires a target profit of $211,640 units
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Answer #1

(a) Contribution margin per unit = Selling price - Variable cost per unit = $220 per unit - $90 per unit = $130 per unit

Break-even point in sales units = Fixed costs / Contribution margin per unit

Break-even point in sales units = $962,000 / $130 = 7,400 units

(b) Break-even point in sales units if the company desires a target profit of $211,640 = (Fixed costs + Target profit) / Contribution margin per unit

Break-even point in sales units if the company desires a target profit of $211,640 = ($962,000 + $211,640) / $130 = 9,028 units

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