Question

Oslo Co prepared the following Contribution Format income statement based on sales volume of 1,000 units. (the relevant rage of production is 500 to 1500 units):

Sales 80,000
Var C 52,000
CM 28,000
Fixed 21,840
NOI 6,160

How many units must be sold to achieve a target profit of $16,800?

Answer 1

To achieve a target profit of $16,800, Oslo Co must sell approximately 1,258 units.

Step-by-step explanation:

Oslo Co's Contribution Format income statement provides insights into the cost and profit structure based on a sales volume of 1,000 units. To determine the number of units needed to reach a target profit of $16,800, we can use the contribution margin per unit. The contribution margin (CM) per unit is obtained by dividing the Contribution Margin (CM) by the number of units sold. In this case, CM per unit = $28,000 / 1,000 units = $28 per unit.

The target profit is the sum of fixed costs and the desired profit. The formula to calculate the required sales volume is:

`\[ \text{Required Sales Volume} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{CM per Unit}} \]`

Substituting the given values:

`\[ \text{Required Sales Volume} = (\$21,840 + \$16,800)/(\$28) \approx 1,258 \text{ units} \]`

Therefore, Oslo Co needs to sell approximately 1,258 units to achieve the target profit of $16,800.

In summary, understanding the contribution margin per unit and utilizing the formula for the required sales volume allows us to determine the number of units Oslo Co must sell to meet the specified profit goal. The calculation ensures a comprehensive understanding of the financial dynamics involved in achieving the desired profit level.