Consider the following information of Kenton Inc.: Fixed costs $42,000 Target net income $14,000 Contribution margin per unit $7 Tax rate 30% Which of the following statements is true of Kenton

Quantity of units required to be sold by Kenton is 8,000 units.

TRUE

Breakeven number of units of Kenton is 4,000 units.

FALSE

Target operating income of Kenton is $18,200.

False

Breakeven number of units of Kenton is 2,000 units.

False

Explanation:

1). Target operating income = $14,000 : (1 - 0.3) = $20,000

Quantity of units required to be sold = (Fixed costs + Target operating income) : Contribution margin per unit = ($42,000+$14,000) / $7 = 8,000

2). Fixed costs $42,000 / Contribution margin per unit $7

= 6000 units

3). Target operating income = 42,000 - 14,000 = 28,000

28,000 * 0.3 = 8,400

4). Fixed costs $42,000 / Contribution margin per unit $7

= 6000 units