Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount

Question

Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Conan Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?

A)

1,120.

B)

8,214.

C)

11,200.

D)

12,320.

E)

14,080.

Answer 1

pretax income wanted = 10% of $112,000 = $11,200

Simple calculation of Net Income is NI = TR - TC or NI = TR-VC-FC or NI = CM-FC so...

$11,200 = (unit sales x CM) - FC

$11,200 = unit sales x $10 - $112,000

unit sales x $10 = $123,200

unit sales = 12,320