The required sales in units to achieve a target net income is
A) (sales + target net income) divided by contribution margin per unit.
B) (sales + target net income) divided by contribution margin ratio.
C) (fixed cost + target net income) divided by contribution margin per unit.
D) (fixed cost + target net income) divided by contribution margin ratio.

Question

Quizplus · Accepted Answer

The formula for calculating the required sales in units to achieve a target net income is (fixed cost + target net income) divided by contribution margin per unit. This is because net income is calculated as sales minus total costs (fixed and variable), and contribution margin is the amount that each unit sold contributes towards covering the fixed costs and generating profit. Therefore, by dividing the total amount of fixed costs and the target net income by the contribution margin per unit, we can determine the number of units that need to be sold in order to achieve the desired net income.

The Required Sales in Units to Achieve a Target Net