9/10 - Instagram Post Solution

 

You can solve this problem with common sense, but if you want to know the correct accounting terminology...

The contribution margin per unit is equal to sales minus variable costs, so in this case that would be $10 - $5 = $5.

We need to sell enough units to cover the fixed costs of $125,000 and earn a before tax profit of $1,000,000.

Therefore, $5X = $1,000,000 + $125,000

X = 225,000 units

 

As a double check:

Revenue = 225,000 * $10 = $2,250,000

Variable Costs = 225,000 * ($5) = ($1,125,000)

Fixed Costs = ($125,000)

Before Tax Profit = $1,000,000

 


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