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3 December, 08:43

Workshape Company sells office chairs at $400 per unit, incurs variable cost per unit of $150, and has a total fixed expense of $40,000.

How many units must be sold to achieve a target operating income of $60,000?

a. 180 units

b. 400 units

c. 200 units

d. 450 units

e. 275 units

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  1. 3 December, 08:44
    0
    Option B: 400 Units of chairs must be sold to earn a target operating income of $60,000

    Explanation:

    Number of Units to be sold to earn a Target Operating Income of $60,000

    = (Target Operating Income + Total Fixed Expenses) : Contribution Per Unit

    Where: Contribution per unit = Selling Price per unit - Variable costs per unit

    Selling Price per Chair $400

    Variable Cost per Chair $ (150)

    Contribution per Chair $250

    Number of Units to be sold to earn a Target Operating Income of $60,000

    = ($40,000 + 60,000) : 250

    = 400 Units of Chairs

    Income Statement of Workshop

    Sales Revenue ($400 * 400 Units) $160,000

    Less: Variable Costs ($150 * 400 Units) $ (60,000)

    Contribution $100,000

    Less: Fixed Expenses $ (40,000)

    Target Operating Profit $60,000
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