Question

Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. The number of units that must be sold to achieve $40,000 of operating income is

Answer 1

The number of units that must be sold to achieve $40,000 of operating income is 617 units.

What is break-even analysis?

Break-even analysis is an accounting concept that can be used to determine the number of units that must be sold to achieve $40,000 of operating income. This can be computed by using the concept of break-even analysis as follows:

Data and Calculations:

Sales units = 500 units

Sales revenue = $75,000

Selling price per unit = $150 ($75,000/500)

Variable costs = $28,000

Variable cost per unit = $56 ($28,000/500)

Contribution margin per unit = $94 ($150 - $56)

Fixed costs = $18,000

Target operating income = $40,000

Break-even point in units to achieve target profit = 617 units ($18,000 + $40,000)/$94

Thus, the number of units that must be sold to achieve $40,000 of operating income is 617 units.

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