Choice "C" is correct. Wren will have sold a total of 10,500 units to achieve a $28,800 operating profit assuming the fact pattern described above. The question requires the candidate to recall the basic contribution margin formula and apply some algebra. The fact pattern describes that the operating income is $28,800 and the fixed costs are $38,400. The contribution margin is; therefore, the total of the two $67,200. The basic formula to compute units sold is:
CM per unit x Units$67,200 |
The fact pattern indicates that Wren has two products with unique selling and cost patterns. First, compute the contribution margin:
| Selling price
| - | Variable cost
| = | Contribution
margin per unit
|
|---|
Product A | $18 | - | $12 | = | $6 |
Product B | $22 | - | $14 | = | $8 |
Second, quantify the selling pattern and the relationship between the products. Wren sells 4 units of Product A for every unit of Product B, so expressing Product A in terms of Product B:
Third, determine the number of units of Product B that were sold:
$6 contribution margin x (4B) + $8 contribution margin x B$67,200 |
24B + 8B |
32B |
B |
Fourth, determine the number of Product A and the total number of products sold:
A |
Total units+ 8,400 or 10,500 |
Choices "a", "d", and "b" are incorrect, per the computations above.
