Question

Medoc Company provides the following information about its single product.

Targeted operating income	​$53,290
Selling price per unit	​$6.85
Variable cost per unit	​$4.00
Total fixed cost	​$95,190

How many units must be sold to earn the targeted operating​ income?

Answer 1

First we will calculate the contribution margin per unit as per below:

Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = $6.85 - $4 = $2.85 per unit

Now, we will use the following formula for determining the required number of units to earn the targeted operating income:

Required units = Fixed cost + Target operating income / Contribution margin per unit

Given: Fixed cost = $95190, Target operating income = $53290, Contribution margin per unit = $2.85 per unit (as calculated in previous step)

Putting the values in the above formula, we get,

Required units = ($95190 + $53290) / $2.85

Required units = $148480 / $2.85 = 52098.25 or 52098 units.