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The formula to calculate the answer to this problem is: Total Revenue ? Total Variable Costs ? Total Fixed Costs = Before-Tax Profit Total Revenue = 25X Total Variable Costs = 4X + 7X + 2X + 3X = 16X Total Fixed Costs = 360,000 + 225,000 = 585,000 Before-Tax Profit = Total Revenue × .10 Therefore, the formula is: 25X ? 16X ? 585,000 = .10(25X) 9X ? 585,000 = 2.5X 6.5X ? 585,000 = 0 6.5X = 585,000 X = 90,000 units This could also be calculated as Total Fixed Cost / (Total Revenue Per Unit ? Total Variable Cost Per Unit ? Before-Tax Profit Requirement Per Unit) The Before-Tax Profit Requirement Per Unit is 25 × .10, or $2.50. Therefore, the formula would be: $585,000 / ($25 ? $16 ? $2.50) = $585,000 / 6.50 = 90,000 units.
65,000 units is the breakeven volume.
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How many units does XYZ Company need to produce and sell to make a before-tax profit of 10% of sales?
