APPLY THE CONCEPTS: Target income (number of units sold)

Suppose a business has pricing and cost information as follows::

Price and Cost Information	Amount
Selling Price per Unit	$10.00
Variable Cost per Unit	$2.50
Total Fixed Cost	$600

For the upcoming period, the company wishes to generate operating income of $900. Given the cost and pricing structure for the company's product, how many units must the company sell to attain its target income?

Remember that the basic equation for calculating operating income is as follows:

Operating Income = (Unit Price x Units Sold) (Variable Cost per Unit x Units Sold) - Fixed Cost Step 1: Replace the operating income in the equation with your company's target income, and insert your cost and pricing information into the equation, as well: 600 X = ($ 10 v x Units Sold) - ($ 5.0 X x Units Sold) Step 2: Rearrange the equation to isolate units to one side of the equation: Fixed Cost + Target Income Number of Units to Earn Target Income = Unit selling price - Variable Cost per Unit + 900 Number of Units to Earn Target Income = Number of Units to Earn Target Income = units Step 3: Create a contribution margin income statement to check your previous work. Enter all amounts as positive numbers. Sales 1,000 X Total variable expense 500 Total contribution margin 500 X Total fixed expense 100 X Operating income 400 X