Phan Company has not reported a profit in five years. This year the company would like to narrow its loss to $7,500. Assuming its selling price is $36.50 per unit and its variable costs per unit are $24, how many units must be sold to achieve its target given that total fixed costs are $60,000? Multiple Choice

a. 2,188

b. 1.439

c. 4,200

d. 1800

c. 4,200 Units

Explanation:

The computation of units to be sold is shown below:-

For computing the units to be sold first we need to find out the Contribution Margin Per Unit and Required Contribution Margin which is shown below:-

Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit

= $36.50 - $24

= $12.50

Required Contribution Margin = Fixed Cost + Required Profit : Loss

= $60,000 - $7,500

= $52,500

Units to be sold to achieve the target = Required Contribution Margin : Contribution Margin Per Unit

= $52,500 : $12.50

= 4,200 Units