Pauley Company provides home health care. Pauley charges $35 per hour for the professional care. The variable costs are $21 per hour and the fixed costs are $78,000. Next year, Pauley would like to earn an operating income of $37,500. How many hours of the professional care must Pauley provide to achieve the target income? a. 5,571 hours b. 3,714 hours c. 8,250 hours d. 2,679 hours e. 5,500 hours

Question

Business

Bentley Bright

26 August, 09:00

Pauley Company provides home health care. Pauley charges $35 per hour for the professional care. The variable costs are $21 per hour and the fixed costs are $78,000. Next year, Pauley would like to earn an operating income of $37,500. How many hours of the professional care must Pauley provide to achieve the target income? a. 5,571 hours b. 3,714 hours c. 8,250 hours d. 2,679 hours e. 5,500 hours

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Answers (1)

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Juan Cervantes · Answer 1

c. 8,250 hours

Explanation:

The computation is shown below:

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

where,

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

= $35 - $21

= $14

Now the number of hours to achieve the target income is

= ($78,000 + $37,500) : ($14)

= 8,250 hours

We simply applied the above formula