Question

locus company has total fixed costs of $114,500. its product sells for $41 per unit and variable costs amount to $16 per unit. next year locus company wishes to earn an income that equals 50% of fixed costs. how many units must be sold to achieve this target income level?

Answer 1

To determine the number of units that Locus Company needs to sell in order to achieve its target income level, we can follow these steps:

1. Calculate the target income: The target income is 50% of the fixed costs, which is equal to 0.5 multiplied by $114,500. This gives us a target income of $57,250.

2. Calculate the contribution margin per unit: The contribution margin per unit is the difference between the selling price and the variable cost per unit. In this case, it is $41 - $16 = $25.

3. Determine the number of units required: To calculate the number of units required to achieve the target income, divide the target income by the contribution margin per unit. Thus, $57,250 divided by $25 gives us 2301 units.

Therefore, Locus Company needs to sell 2301 units in order to achieve a target income equal to 50% of its fixed costs.