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Hi Sir,
Could you please kindly explain why Answer C is not correct for Question No.1?
Do I understand correctly that as the budgeted output already generated a profit of $180,000, the extra units needed will be ($270,000-$180,000)/($6+$4) = 9,000 units, making a total of sales of 39,000 units?
Thank you very much for your kind help!
The total budgeted fixed overheads are 30,000 x $4 = $120,000.
The total will stay the same regardless of the level of production (by definition).
To make a profit of $270,000, then need therefore to make a contribution of $270,000 + $120,000 = $390,000.
The contribution per unit is $10, and therefore the need to produce 390,000/10 = 39,000 units.
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