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

question 162

Multiple Choice

A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses are $120,000. How many units must be sold to yield a profit of $30,000?

• A) 18,750
• B) 20,000
• C) 25,000
• D) 12,500

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Definitions:

Four Year Payback

A capital budgeting method that calculates the time required to recoup the initial investment in a project, specifically over a period of four years.

Payback Period

The payback period is the length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash inflow.

Discounted Payback

A capital budgeting method that calculates the time needed to recoup investment costs, taking the time value of money into account.