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19 November, 03:44

Consider the following information of Kenton Inc.: Fixed costs $42,000 Target net income $14,000 Contribution margin per unit $7 Tax rate 30% Which of the following statements is true of Kenton

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  1. 19 November, 03:51
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    Quantity of units required to be sold by Kenton is 8,000 units.

    TRUE

    Breakeven number of units of Kenton is 4,000 units.

    FALSE

    Target operating income of Kenton is $18,200.

    False

    Breakeven number of units of Kenton is 2,000 units.

    False

    Explanation:

    1). Target operating income = $14,000 : (1 - 0.3) = $20,000

    Quantity of units required to be sold = (Fixed costs + Target operating income) : Contribution margin per unit = ($42,000+$14,000) / $7 = 8,000

    2). Fixed costs $42,000 / Contribution margin per unit $7

    = 6000 units

    3). Target operating income = 42,000 - 14,000 = 28,000

    28,000 * 0.3 = 8,400

    4). Fixed costs $42,000 / Contribution margin per unit $7

    = 6000 units
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