Asked by Jamie Osborn on May 05, 2024
Verified
If fixed costs are $1,200,000, the unit selling price is $240, and the unit variable costs are $110, what is the amount of sales in units (rounded to a whole number) required to realize an operating income of $200,000?
A) 9,231 units
B) 12,000 units
C) 10,769 units
D) 5,833 units
Operating Income
Represents the amount of profit realized from a business's operations, after deducting operating expenses such as wages, depreciation, and cost of goods sold from gross revenue.
Unit Selling Price
The price at which a single unit of a product is sold to customers.
Unit Variable Costs
The costs that vary directly with the volume of production or sales, such as materials and labor.
- Implement cost-volume-profit (CVP) analysis and figure out the break-even point.
- Ascertain the necessary sales volume to attain a designated operating profit.
Verified Answer
Break-even point (units) = Fixed costs / (Unit selling price - Unit variable costs)
Using this formula, we can calculate the break-even point as:
Break-even point (units) = $1,200,000 / ($240 - $110) = 10,769 units
To calculate the sales in units required to realize an operating income of $200,000, we use the following formula:
Sales (units) = (Fixed costs + Operating income) / (Unit selling price - Unit variable costs)
Using this formula, we can calculate the sales in units as:
Sales (units) = ($1,200,000 + $200,000) / ($240 - $110) = 9,231 units
Therefore, the answer is C (10,769 units) which is the break-even point in units, plus the additional units required to realize the operating income of $200,000.
Learning Objectives
- Implement cost-volume-profit (CVP) analysis and figure out the break-even point.
- Ascertain the necessary sales volume to attain a designated operating profit.
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