Dannica Corporation produces products that it sells for $40 each. Variable costs per unit are $25, and annual fixed costs are $360,000. Dannica desires to earn a profit of $150,000.

Dannica Corporation produces products that it sells for $40 each. Variable costs per unit are $25, and annual fixed costs are $360,000. Dannica desires to earn a profit of $150,000.

Required

1. Use the equation method to determine the break-even point in units and dollars.
2. Determine the sales volume in units and dollars required to earn the desired profit.
    
   Explanation
   N = Number of units to break-even
   Sales − Variable cost − Fixed cost = Profit
   (Sales price × N) − (Variable cost per unit × N) = Fixed cost + Profit
   (Contribution margin per unit × N) = Fixed cost + Profit
   N = (Fixed cost + Profit) ÷ Contribution margin per unit
   
   a.
   40N – 25N − $360,000 = 0
   15N = $360,000
   N = 24,000 units
   $40 × 24,000 =$960,000
   
   b.
   N = ($360,000 + $150,000) ÷ ($40 − $25) = 34,000 units
   Sales in $ = $40 × 34,000 = $1,360,000