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Manage Budgets and Financial Plans - Activity 2

Calculation of number of units needed to achieve the target profit at current variable cost

Formula = (Fixed cost + Target profit)/ Contribution per unit

• Current selling price = $500 per unit
• Variable cost per unit = $250 per unit

Contribution per unit = Selling price per unit – Variable cost per unit

= $500-$250

= $250

• Fixed cost = $1,280,000
• Target profit = $1,000,000

Number of units required = ($1280000+1000000)/$250

= 9120 units

Calculation of variable cost per unit that need to achieve the target profit with current manufacturing capacity

Current selling units = (Fixed cost + target profit)/ (Selling price-VC cost per unit)

8000 units = ($1280000+1000000)/ ($500-VC cost per unit)

$500-VC per unit = $2280000/8000 units

$500-VC per un....