Mastering Cost and Managerial Accounting: Your Path to Success

The contribution margin for a company is $25 per unit, the sales price is $50 per unit, and fixed costs are $100,000. How many units must be sold to make a target net income of $200,000?

• A. 12,000 units
• B. 15,000 units
• C. 9,000 units
• D. 6,000 units

Answer: (A)

To determine how many units must be sold to achieve a target net income of $200,000, we first need to understand the relationship between sales, costs, and profit. The contribution margin is the amount that each unit sold contributes to covering fixed costs and generating profit after variable costs have been subtracted from sales revenue. In this scenario, the contribution margin is $25 per unit. This value is obtained by subtracting the variable cost per unit from the sales price per unit. Knowing the contribution margin is essential because it tells us how much money is available from each unit sold to cover fixed costs and contribute to profit. Next, we need to account for both fixed costs and the target net income. The total amount needed to cover fixed costs and to achieve the target profit can be calculated as follows: Total required = Fixed Costs + Target Net Income Total required = $100,000 + $200,000 Total required = $300,000 Now, to find the number of units that need to be sold to reach this total required amount, we divide the total required amount by the contribution margin: Units to be sold = Total required / Contribution Margin Units to be sold = $300,000 / $25 Units to be sold

Are you preparing for the WGU ACCT3314 D101 Cost and Managerial Accounting exam? You’re in the right place! This subject can be a real game-changer when it comes to understanding how businesses operate financially. Today, we’ll dig into a practical question that could easily pop up on your exam, illustrating crucial concepts like contribution margin and how it ties into financial decision-making.

Let’s get started with a scenario: imagine a company that has a contribution margin of $25 per unit and sells its product for $50 per unit. Now, throw in some fixed costs totaling $100,000 and a goal to make a net income of $200,000. Sounds familiar? This type of question is not just about crunching numbers; it’s about grasping the meaning behind them. But how do we figure out how many units need to be sold to hit that income target?

Well, first off, let’s clarify what contribution margin is. It’s the amount each unit adds to covering fixed costs and pushing profits up, after deducting variable costs. So, if each unit nets $25, that’s our starting point. To reach a target net income, we need to first understand how much total cash we’re aiming for.

Here’s the math breakdown. Total required revenue to meet our fixed costs and desired profit is:

Total required = Fixed Costs + Target Net Income

Total required = $100,000 + $200,000

Total required = $300,000

Now that we know how much we need to bring in, we can figure out how many units we need to sell to achieve that.

Let’s do the final calculation:

Units to be sold = Total required / Contribution Margin

Units to be sold = $300,000 / $25

Drumroll, please! The result is 12,000 units. That’s right! For this company to reach its target of $200,000 in net income while factoring in its fixed costs, it needs to sell 12,000 units.

You might be asking, why does all this matter? In the professional world, these calculations drive business decisions. They help determine pricing strategies, encourage budget adjustments, and influence overall financial planning. Understanding the interplay of these variables not only prepares you to ace your exam but equips you with essential skills for real-world applications.

As you continue your studies, lean into these financial principles. Whether it’s dissecting contribution margins or evaluating costs, each concept builds your understanding of the financial landscape within a business. Remember, accounting isn’t just about numbers; it’s a narrative that tells the story of a company’s performance. So, embrace the learning process and keep a curious mindset!

And don't forget—while you’re studying, practice makes perfect. Engage with additional scenarios like this one to hone your skills. Whether it’s through group studies or working with online resources, repetition will reinforce your understanding and confidence.

Now, go ahead and tackle that exam with a head full of knowledge and a heart ready to conquer! You've got this!