A Product Sells for $20 Per Unit,and Has a Contribution

question 73

Multiple Choice

A product sells for $20 per unit,and has a contribution margin ratio of 40%.Fixed expenses total $120,000 annually.The company that makes and sells the product has an income tax rate of 40%.How many units must be sold to yield an after-tax operating profit of $30,000?

• A) 21,250 units.
• B) 18,750 units.
• C) 24,375 units.
• D) 14,167 units.Units required = (120,000 + 50,000)/(20 * .40)= 21,250 units.

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Definitions:

Investment

The allocation of resources, such as time, money, or effort, in hope of generating a future benefit or profit.

Strip Bond

A debt security that has had its main components, namely the coupon and the principal, separated to be sold individually as zero-coupon bonds.

Maturity

The set date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and payable.

Yield

The income return on an investment, such as the interest or dividends received, usually expressed as an annual percentage rate based on the investment's cost, its current market value, or its face value.