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Locus Company has total fixed costs of $117,500. Its product sells for $53 per unit and variable costs amount to $43 per unit. Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?

a. 11,600.
b. 9,083.
c. 3,480.
d. 42,971.
e. 15,080.

Respuesta :

jafransp

Answer:

12,925 units

Explanation:

Given,

Fixed expense = $117,500

If pretax income is 10% of fixed cost, the expected net operating income = $117,500 × 10% = $11,750.

Contribution margin per unit = $53 - $43 = $10.

We know,

Expected sales (units) = (Fixed expense + Target profit) ÷ Contribution Margin per unit

Expected sales (units) = ($117,500 + $11,750) ÷ $10

Expected sales (units) = $129,250 ÷ $10

Expected sales (units) = 12,925 units

As there is no information related to the next year, we will use current year information to find expected sales volume.

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