The total market demand for toys in Springfield is 100,000 units. A company manufacturing toys has a variable cost is $10 per toy. Selling price is $18 per toy and Company Fixed cost is $160,000. Calculate the break Even Volume it should obtain to reach a target profit of $200,000. 25% 35% 40% 45% None of the above

    = 45%

Explanation:

Break-even point is the level of activity that achieves no profit or loss. At this level, profit is zero because  the total revenue  is equal to total cost.

The break-even point is calculated as

Units to achieve target profit = (Total general fixed cost for the period + target profit)/ contribution per unit

Contribution per unit = Selling Price - Variable cost

So the units requited to achieve target for Springfield is:

Units to achieve target profit

= (160,000 + 200,000)/(18-10)

  =  45,000 units

In % = (45,000/100,000 ) × 100

      = 45%

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