Question

Ramsey Corporation desires to earn target net income of $90,000. If the selling price per unit is $30, unit variable cost is $24, and total fixed costs are $360,000, the number of units that the company must sell to earn its target net income is
a. 30,000.
b. 75,000.
c. 45,000.
d. 60,000.

Answer 1

Answer:

b. 75,000 units

Explanation:

Fixed cost = $360,000

Target net income = $90,000

Selling price per unit = $30

Unit variable cost = $24

The computation of net income is shown below :-

= (Fixed expenses + target profit) ÷ (Contribution margin per unit)

where,  

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

= $30 - $24

= $6

So, the net income is

= ($360,000 + $90,000) ÷ ($6)

= ($450,000) ÷ ($6)

= 75,000 units