The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by $0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,700?

Question:

The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by $0.50 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,700?  

                                                               $

Sales (13,100 units × $20 per unit)  262,000

Variable expenses                            131,000

Contribution margin                          131,000

Fixed expenses                                (146,000)

Net operating loss                          $(15,000)

Answer and its explanation:

The company has to find the number of units at which the target profit is $4700.

So the formula for finding the number of units required to make a profit of $4700 is as under:

Number of Units = (Fixed Cost + Target Profit) / Contribution per unit EQ1

Now first of all we have to find the contribution per unit, which can be found from the following formula:

Contribution per unit = Total contribution / Total units sold

Here we have total contribution of $131,000 and total units of 13,100 units.

By putting values in the equation, we have:

Contribution per unit =  $131,000 / 13,100 units = $10 per unit

Now we put this value in the Equation 1 to find the required number of units to be sold to achieve a profit of $4700.

Number of Units = ($146,000 + $4700) / $10 per unit = 15,070 units

So the required units that must be sold are 15,070 to achieve $4700 profit.

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