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This data information is on a monthly basis. The unit contribution margin is $3 per lb, calculated as follows: Selling price per pound $5.90 Less: Variable costs per lb, based on 1,000,000 lbs: Direct materials: $300,000 ÷ 1,000,000 lbs .30 Direct labor: $1,250,000 ÷ 1,000,000 lbs 1.25 Variable factory overhead: $450,000 ÷ 1,000,000 lbs .45 Variable selling, general, and adm. expense: $900,000 ÷ 1,000,000 lbs .90 Contribution margin per lb. $3.00 Fixed factory overhead is $2,000,000, and fixed selling, general and administrative expense is $1,500,000. Since the company's income tax rate is not given, we can assume the question is asking for before-tax profit. Furthermore, the required profit amount given is for a year, whereas the costs are given for one month. Therefore, we must adjust either the fixed costs or the required profit amount so they are both for the same duration. Since the question asks for an annual sales volume, we will adjust the costs by multiplying them by 12. Fixed factory overhead for one year is $24,000,000 and fixed selling, general and administrative expense is $18,000,000. The formula to find the required number of units to sell to earn a specific profit is: (Fixed Costs + Required Profit) / Contribution Margin Per Unit ($24,000,000 + $18,000,000 + $3,000,000) / $3 = 15,000,000 units
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See correct answer.
See correct answer.