Question

Consider the following information of Kenton Inc.: Fixed costs $42,000 Target net income $14,000 Contribution margin per unit $7 Tax rate 30% Which of the following statements is true of Kenton

Answer 1

Quantity of units required to be sold by Kenton is 8,000 units.

TRUE

Breakeven number of units of Kenton is 4,000 units.

FALSE

Target operating income of Kenton is $18,200.

False

Breakeven number of units of Kenton is 2,000 units.

False

Step-by-step explanation:

1). Target operating income = $14,000 ÷ (1 − 0.3) = $20,000

Quantity of units required to be sold = (Fixed costs + Target operating income) ÷ Contribution margin per unit = ($42,000+$14,000) / $7 = 8,000

2). Fixed costs $42,000 / Contribution margin per unit $7

= 6000 units

3). Target operating income = 42,000 - 14,000 = 28,000

28,000 * 0.3 = 8,400

4). Fixed costs $42,000 / Contribution margin per unit $7

= 6000 units