Question

ABC Inc. manufactures and sells toys. Price and cost data are as follows: Selling price per unit (package of 2 CDs)...................................... $30.00 Variable costs per unit: Direct material............................................................................................................... $5.00 Direct labor...................................................................................................................... $6.00 Artist's royalties.............................................................................................................. $5.50 Manufacturing overhead.......................................................................................... $4.00 Selling expenses............................................................................................................ $2.30 Total variable costs per unit............................................................ $22.80 Annual fixed costs: Manufacturing overhead.......................................................................................... $199,000 Selling and administrative....................................................................................... $376,000 Total fixed costs................................................................................ $575,000 Forecasted annual sales volume (120,000 units)......................... $3,600,000 How many units would ABC Inc. have to sell in order to earn operating income of $260,000?

Answer 1

--Requirement asked, with calculations

A	Sale price per unit	$30.00
B	Variable cost per unit	$22.80
C = A -B	Contribution margin per unit	$7.20
D	Total Fixed expenses	$575,000
E	Total desired operating income	$260,000
F = D+E	Total contribution margin required to be earned	$835,000
G = F/C	Units to be sold to earn Operating Income of $ 260000	115,972 unit [Answer]