A group of venture investors is considering putting money into Lemma Books, which wants to produce a new reader for electronic books. The variable cost per unit is estimated at $250, the sales price would be set at twice the VC/unit, or $500, and fixed costs are estimated at $350,000. The investors will put up the funds if the project is likely to have an operating income of $500,000 or more. What sales volume would be required in order to meet the minimum profit goal? (Hint: Use the break-even formula, but include the required profit in the numerator.) 3,706 3,400 2,958 3,094 4,216

Question

Business

Raphael Le

21 December, 20:16

A group of venture investors is considering putting money into Lemma Books, which wants to produce a new reader for electronic books. The variable cost per unit is estimated at $250, the sales price would be set at twice the VC/unit, or $500, and fixed costs are estimated at $350,000. The investors will put up the funds if the project is likely to have an operating income of $500,000 or more. What sales volume would be required in order to meet the minimum profit goal? (Hint: Use the break-even formula, but include the required profit in the numerator.) 3,706 3,400 2,958 3,094 4,216

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Paloma · Answer 1

3,400 units

Explanation:

The computation of the required sales volume is shown below:

Let us assume the sales volume be X

As we know that

Sales - variable cost - fixed cost = Operating income

So,

Operating income = - Fixed cost + Selling price per unit * sales volume - variable cost per unit * sales volume

$500,000 = - $350,000 + 500X - 250X

$500,000 + $350,000 = $250X

$850,000 = $250X

So, X = 3,400 units

i. e Sales volume is 3,400 units

We simply applied the above formula