Highjinks, Inc., has provided the following budgeted data: How many units would the company have to sell in order to have a net operating income equal to 5% of total sales dollars?

Question

Highjinks, Inc., has provided the following budgeted data:  How many units would the company have to sell in order to have a net operating income equal to 5% of total sales dollars?

Quizplus · Accepted Answer

Unit CM = Selling price per unit - Variable expenses per unit
= $100 per unit - $70 per unit = $30 per unit
Let X = Unit sales to attain a target profit
Target profit = 0.05 × X × $100 per unit = $5 per unit × X
X = (Target profit + Fixed expenses) ÷ Unit CM
X = ($5 per unit × X + $450,000) ÷ $30 per unit
$30 per unit × X = $5 per unit × X + $450,000
$25 per unit × X = $450,000
X = $450,000 ÷ $25 per unit = 18,000 units