Cedar Mills Incorporated has a predicted operating income of $72,000. Its variable expenses are $20,000 and its total fixed expenses have increased from $32,000 to $60,000. Its unit contribution margin is $10. Its breakeven sales in units is

Question

Quizplus · Accepted Answer

To calculate the breakeven sales in units, we need to use the following formula:

Breakeven sales (units) = Total fixed expenses/Unit contribution margin

Since the total fixed expenses have increased from $32,000 to $60,000, we use the new figure:

Breakeven sales (units) = $60,000/$10 = 6,000 units

To achieve a predicted operating income of $72,000, Cedar Mills needs to sell:

Target sales (units) = (Total fixed expenses + Target operating income)/Unit contribution margin

Target sales (units) = ($60,000 + $72,000)/$10 = 13,200 units

Therefore, the breakeven sales in units is 13,200. Option C is the correct answer.

Cedar Mills Incorporated Has a Predicted Operating Income of $72,000