Assume an Organization Must Invest $700,000 in Fixed Costs to Produce

question 9

Multiple Choice

Assume an organization must invest $700,000 in fixed costs to produce a product that sells for $75 and requires $40 in variable costs to produce one unit. How many units of output must be sold to earn a $50,000 profit?

• A) 17,500 units
• B) 20,000 units
• C) 21,428 units
• D) 24,667 units
• E) None of the above

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Definitions:

Contribution Margin Ratio

A calculation that shows what percentage of sales revenue is available to cover the fixed costs of a business after variable costs have been paid.

Fixed Expenses

Costs that remain constant regardless of any change in a company's activity level, such as lease payments, insurance, and property taxes.

Sales

Represents the total income generated by a company from selling goods or services before any expenses are subtracted.

Minimum Required Rate

The lowest return rate that an investment must offer to be considered viable or acceptable.