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Practice CPA®CPA BAR Practice Exam 2Question 11

Hard1 markMultiple Choice

Area I: Business AnalysisBARArea IBreakeven Analysis

CPA · Question 11 · Area I: Business Analysis

A company sells a single product for $50. Variable costs are $30 per unit. Fixed costs are $100,000. The company wants to earn a target operating income of $40,000. How many units must be sold to achieve this target?

Answer options:

A.

5,000 units

B.

7,000 units

C.

2,800 units

D.

2,000 units

How to approach this question

Formula: (Fixed Costs + Target Profit) / Contribution Margin per Unit.

Full Answer

B.7,000 units✓ Correct

B

CM = $20. Required Contribution = Fixed Costs ($100,000) + Target Profit ($40,000) = $140,000. Units = $140,000 / $20 = 7,000.

Common mistakes

Forgetting to include fixed costs; using selling price instead of contribution margin in the denominator.

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