Locus Company has total fixed costs of $116,500. Its product sells for $49 per unit and variable costs amount to $29 per unit. Next year Locus Company wishes to earn a pretax income that equals 40% of fixed costs. How many units must be sold to achieve this target income level?

Question

Business

Chocolate

26 March, 16:41

Locus Company has total fixed costs of $116,500. Its product sells for $49 per unit and variable costs amount to $29 per unit. Next year Locus Company wishes to earn a pretax income that equals 40% of fixed costs. How many units must be sold to achieve this target income level?

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Anthony Galvan · Answer 1

8,155

Explanation:

The pretax income is the difference between the total revenue and the total expense. The total expense is the sum of the fixed and variable cost. Both the total revenue and variable cost are a direct function of the number of units sold.

Let the number of units required to make the targeted pretax income be x

49x - 29x - 116,500 = 0.4 * 116,500

20x = 163100

x = 8155

The number of units that must be sold to achieve this target income level is 8,155