Johnson Plumbing's fixed costs are $700,000 and the unit contribution margin is $17. What amount of units (rounded to a whole number) must be sold in order to realize an operating income of $100,000?
A) 5,000
B) 41,176
C) 47,059
D) 58,882

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to first determine the contribution margin per unit:
Contribution margin per unit = Selling price - Variable costs per unit
In this case, we are not given the selling price or the variable costs per unit, but we are given the unit contribution margin, which is $17.

Next, we can use the formula to calculate the break-even point in units:
Break-even point (in units) = Fixed costs / Contribution margin per unit

Substituting the given values:
Break-even point = $700,000 / $17 = 41,176 units (rounded to the nearest whole number)

To calculate the units needed to achieve an operating income of $100,000, we can use the formula:
Operating income = (Unit contribution margin x Units sold) - Fixed costs

Substituting the given values:
$100,000 = ($17 x Units sold) - $700,000
$800,000 = $17 x Units sold
Units sold = $800,000 / $17 = 47,058.82 (rounded to the nearest whole number)

Therefore, the best choice is (C) 47,059 units.

Johnson Plumbing's Fixed Costs Are $700,000 and the Unit Contribution