If total fixed costs are $84,000, contribution margin per unit is $6.20, and targeted after?tax net income is $18,000 with a 40% tax rate, then the number of units that must be sold is _____.
A)14,223 units
B)17,853 units
C)18,387 units
D)21,504 units

Question

Quizplus · Accepted Answer

First, we need to calculate the total contribution margin needed to cover the fixed costs and achieve the targeted after-tax net income:

Targeted after-tax net income = $18,000
Tax rate = 40%
Pre-tax net income needed = $30,000 ($18,000/0.6)
Total contribution margin needed = $114,000 ($84,000 + $30,000)

Next, we can calculate the number of units that must be sold:

Contribution margin per unit = $6.20
Sales (in units) needed = $114,000 ÷ $6.20 = 18,387 units

Therefore, answer choice C (18,387 units) is the correct answer.

If Total Fixed Costs Are $84,000, Contribution Margin Per Unit