Question

Locus Company has total fixed costs of $118,000. Its product sells for $55 per unit and variable costs amount to $39 per unit. Next year Locus Company wishes to earn a pretax income that equals 20% of fixed costs. How many units must be sold to achieve this target income level?

Answer 1

8,850 units

Step-by-step explanation:

We know that

Net income = Unit sales × (Selling price per unit - variable cost per unit) - Fixed cost

$23,600 = Unit sales × ($55 - $39) - $118,000

$23,600 = Unit sales × $16 - $118,000

$23,600 +$118,000 = $16 unit sales

So, unit sales = 8,850 units

The net income is computed below:

= Given percentage × Total fixed cost

= 20% × $118,000

= $23,600