- 1 Marks
Question
XYZ Company produces a single product XEE selling for N20 and has a variable cost of N12 per unit. If fixed cost of N2.4 million accrues evenly over the year and the company wants to achieve a monthly target profit after tax of N526,400 considering a company tax rate of 30%, calculate the level of monthly sales required to achieve the target profit in units.
A. N365,800
B. N300,000
C. N119,000
D. N90,800
E. N71,060
Answer
C. N119,000
Explanation:
The correct answer is option C, “N119,000.”
Explanation: To calculate the monthly sales required to achieve the target profit, we need to find the contribution per unit and then determine the units required to cover the fixed cost and desired profit.
- Contribution per unit = Selling Price – Variable Cost = N20 – N12 = N8
- Target profit before tax = Target profit after tax / (1 – Tax rate)
= N526,400 / (1 – 0.3) = N526,400 / 0.7 = N752,000 - Required Contribution = Fixed Cost + Target Profit
= N2,400,000 / 12 (for monthly) + N752,000
= N200,000 + N752,000 = N952,000 - Units required = Required Contribution / Contribution per unit
= N952,000 / N8 = 119,000 units.
- Tags: Break-Even Point, Contribution margin, CVP Analysis, Sales Calculation, Target Profit
- Level: Level 1
- Topic: Cost-Volume-Profit (CVP) Analysis
- Series: MAR/JULY 2020
- Uploader: Theophilus