Question

7. Choco Heaven had a net loss of $100,000 in 2011 when the selling price per unit was $15, the variable costs per unit were $10, and the fixed costs were $200,000. Management expects per unit data and total fixed costs to be the same in 2012. Management has set a goal of earning net income of $50,000 in 2012. Choco Heaven is operating at 50% of capacity. Instructions A. How many units did Choco Heaven sell in 2011? B. How many units will Choco Heaven need to sell in 2012 to reach its goal of $50,000? c. How feasible is it that Choco Heaven might achieve its goal?

Answer 1

A.

Net Loss = $100,000

Selling price per unit = $15

Variable cost per unit = $10

Fixed cost = $200,000

Let the number of units sold in 2011 = K

Sales = Number of units sold x Selling price per unit

= 15K

Loss = Sales - Variable cost - Fixed cost

-100,000 = 15K - 10 - 200,000

K = 20,000

Number of units sold in 2011 = 20,000

B.

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

= 15-10

= $5

Number of units to be sold to earn target profit = ( Fixed cost + Target profit) / Contribution margin per unit

= ( 200,000+50,000)/5

= 50,000 units

Hence, in 2012, 50,000 units must be sold to earn an income of $50,000.

C.

At 50% capacity, the number of units sold was 20,000.

Hence at 100% capacity, the number of units sold is = 20,000 x 2

= 40,000

Thus it is not feasible that Choco Heaven might achieve its goal.

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