Explanation:
The computation is as follows
1. The break even point in units are as follows:
= (Annual Fixed expenses ) ÷ (Contribution margin per unit)
where,
Contribution margin per unit = Selling price per unit - Variable expense per unit
So, the break even point in units is
= ($68,000) ÷ ($10 - $2)
= $68,000 ÷ $8
= 8,500 units
2. The contribution margin ratio is
Contribution margin ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100
So, the ratio = ($8) ÷ (10) × 100
= 80%
3. The break even sales revenue is
= Annual fixed expenses ÷ contribution margin ratio
= $68,000 ÷ 80%
= $85,000
4. Now the target sales in units is
= (Fixed expenses + target profit) ÷ (Contribution margin per unit)
= ($68,000 + $74,000) ÷ ($8)
= $17,750 units
