Answer to Question #244969 in Financial Math for Jen

Question

A company sells a product at $60 per unit that has unit variable costs of $40. The company's break-even sales volume is $120,000. How much profit will the company make if it sells 4,000 units?

A. $240,000

b. $40,000

c. 80,000

D. 120,000

Answer 1

b. $40,000

Break-even sales volume is the level of sales where the contribution earned is enough to cover the fixed cost of the organization.

Break even sales $=$ $\frac{\$120,000}{\$60} = 2,000 units$

$2,000 units$ is the level there is no profit.

But after 2,000 units whatever contribution earned is profit.

Sales price per unit$= \$60$

Variable cost per unit$=\$40$

Contribution per unit$= (\$60 -\$40)=\$20$

After 2,000 units for the rest $= (4,000 -2,000)=2,000units$

Profit$=2,000×20 =\$40,000$