Question

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

Answer 1

Option B: 400 Units of chairs must be sold to earn a target operating income of $60,000

Step-by-step 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