Ask Question
2 April, 02:27

Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 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?

+5
Answers (2)
  1. 2 April, 02:32
    0
    12,320 units

    Explanation

    First we have to determine the target profit.

    Desired Profit = $112,000 x 10% = $11,200

    Now we will calculate the contribution margin which is a net value of selling price and variable cost.

    Contribution margin = Sales - Variable cost

    Contribution margin = $35 - $25

    Contribution margin = $10 per unit

    Formula for target sales is as follow

    Target Sales = (Fixed cost + Target profit) / Contribution margin

    Target Sales = ($112,000 + $11,200) / $10

    Target Sales = $123,200 / $10 = 12,320 units
  2. 2 April, 02:48
    0
    12,320

    Explanation:

    First, you have to find the 10% of the fixed costs:

    $112,000*10% = $11,200

    Now, you need to find the amount of units that multiply for the price that is $35 minus the costs would give a pretax income of $11,200:

    Income = Sales-Fixed Costs-Variable costs

    11,200 = (35*Q) - 112,000 - (25*Q), Q = quantity of products sold

    11,200+112,000 = 35Q-25Q

    123,200=10Q

    Q=123,200/10

    Q=12,320

    The number of units that must be sold to achieve this target income level is 12,320.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers