Question

Sparkle Jewelry sells 700 units resulting in $ 90 comma 000 of sales​ revenue, $ 30 comma 000 of variable​ costs, and $ 22 comma 000 of fixed costs. The number of units that must be sold to achieve $ 41 comma 000 of operating income is​ ________. A. 736 units B. 479 units C. 257 units D. 649 units

Answer 1

Answer:

A. 736 units.

Explanation:

Operating income, also known as Earnings Before Interest and Taxes, is the income that company generates after paying for its manufacturing, operating, and administrative expenses. It is calculated as:

               Operating Income = (SP * Q) - (VC * Q) - Fixed cost

where

SP = Selling Price

Q = Target Quantity

VC = Variable cost

It means that the equation requires us to put the values of SP and VC. We are provided with sales revenue and variables costs at 700 units. This information will be used to calculate the required input variables. We know that;

Sales revenue = SP * Q

Variable cost = VC * Q

Simply put values and you will find that the SP is equal to $128.57, whereas variable cost is $42.86.

Now as we have all the values to calculate the Target quantity, put values in the equation:

⇒    41,000 = (128.57 * Q) - (42.86 * Q) - 22,000

OR  41,000 + 22,000 = Q (128.57 - 42.86)

OR  63,000 = Q (85.71)

⇒ Target quantity = Q = 736 units.