MINI-CASE
Smith Automotive is a company that produces component parts for automobile engines.A margin of $4 per unit produces fixed expenses of $80 million.The market demand for the component parts is 400 million units per year.
-Mini-Case Question.Determine the required volume if the company's operating income is $20 million.
A)10 million units
B)20 million units
C)25 million units
D)30 million units
E)35 million units

Question

Quizplus · Accepted Answer

To calculate the required volume, we can use the following formula:
Operating Income = (Selling Price per Unit - Variable Cost per Unit) * Volume - Fixed Expenses
Given:
Margin per unit = $4
Fixed Expenses = $80 million
Operating Income = $20 million

We can rearrange the formula to solve for the required volume:
Volume = (Operating Income + Fixed Expenses) / (Selling Price per Unit - Variable Cost per Unit)

Plugging in the given values, we get:
Volume = ($20 million + $80 million) / ($4 per unit)
Volume = 25 million units

Therefore, the best choice is C) 25 million units.

MINI-CASE Smith Automotive Is a Company That Produces Component Parts for for Automobile