Question

Sunn company manufactures a single product that sells for 180 per unit and whose variable costs are 135 per unit. The company's annual fixed costs are 562500. Management targets an annual income of 1012500. What is the number of units that the company needs to sell in order to achieve its target income?

Answer 1

To achieve an annual income of $1,012,500, the Sunn company needs to sell 35,000 units of its product, which is calculated by dividing the total profit required by the contribution margin per unit.

Step-by-step explanation:

The student is asking how many units the Sunn company must sell to achieve an annual income target of $1,012,500. To calculate this, we use the formula for break-even analysis and target income calculations which is based on the concepts of fixed costs, variable costs, and the selling price per unit.

To achieve a target income, we first need to calculate the total amount of profit required. This is done by adding the fixed costs to the desired target income.

The contribution margin per unit is the selling price per unit minus the variable cost per unit. For Sunn company, the contribution margin per unit is $180 - $135 = $45.

The total amount of profit required is the annual fixed costs plus the target income, which equals $562,500 + $1,012,500 = $1,575,000.

We then divide the total profit required by the contribution margin per unit to get the number of units needed to be sold. $1,575,000 / $45 = 35,000 units.

Therefore, the Sunn company needs to sell 35,000 units to meet its annual income target of $1,012,500.