Question

MC Qu. 90 Locus Company has total fixed costs... Locus Company has total fixed costs of $117,000. Its product sells for $51 per unit and variable costs amount to $26 per unit. Next year Locus Company wishes to earn a pretax income that equals 50% of fixed costs. How many units must be sold to achieve this target income level?

Answer 1

The correct answer is 7,020 units.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Fixed cost = $117,000

Selling price = $51

Variable cost = $26

Pretax income to earn = 50% of fixed cost

So, Pretax income = 50% × $117,000 = $58,500

So, we can calculate the units required by using following formula:

Units required = (Total fixed costs + Pretax income) ÷ (Selling price - variable cost)

= ($117,000 + $58,500) ÷ ( $51 - $26)

= 7,020 units.