Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?
A) 14,080.
B) 11,200.
C) 12,320.
D) 1,120.
E) 8,214.

Question

Quizplus · Accepted Answer

First, we need to calculate the target income level. 
10% of fixed costs = 0.10 x $112,000 = $11,200

Next, we can use the contribution margin approach to calculate the number of units required to achieve this target income level.

Contribution margin per unit = price per unit - variable cost per unit 
Contribution margin per unit = $35 - $25 = $10

To cover the target income level of $11,200, we would need to sell:

$11,200 / $10 per unit = 1,120 units

Therefore, the answer is option C, 12,320 units.

Locus Company Has Total Fixed Costs of $112,000