Target Profit in Units Using Contribution Margin

Steps:

• Contribution margin per unit = $25 × 80$20.
• Total contribution required = fixed costs + target profit = $400,000 +$200,000 = $600,000.
• Units to sell = total contribution required ÷ contribution margin per unit = $600,000 ÷$20 = 30,000.
• At 30,000 units, profit = (30,000 × $20) -$400,000 = $200,000.

Why D is correct:

• Formula for target profit units = (fixed costs + target profit) ÷ contribution margin per unit yields exactly 30,000.

Why the others are wrong:

• A: Yields contribution of $200,000, covering fixed costs but profit of only -$200,000 (loss).
• B: Yields contribution of 0 (break-even).

Final answer: D