A recent income statement of Toronto Corporation reported the following data: units sold 10,000; sales revenue $9,500,000; variable costs $4,000,000; fixed costs $1,600,000. If Dagwood wanted to earn a target net profit of $1,150,000, it would have to sell:

Question

Quizplus · Accepted Answer

To calculate the number of units required to earn a target net profit of $1,150,000, we need to use the formula:

(Target Net Profit + Fixed Costs) ÷ Contribution Margin per Unit = Number of Units

The contribution margin per unit is calculated as sales revenue per unit minus variable costs per unit. Therefore:

Contribution Margin per Unit = (Sales Revenue ÷ Units Sold) - (Variable Costs ÷ Units Sold)
Contribution Margin per Unit = ($9,500,000 ÷ 10,000) - ($4,000,000 ÷ 10,000)
Contribution Margin per Unit = $950 - $400
Contribution Margin per Unit = $550

Substituting the values:

($1,150,000 + $1,600,000) ÷ $550 = 5,000

Therefore, Dagwood would have to sell 5,000 units to earn a target net profit of $1,150,000. The answer is D.

A Recent Income Statement of Toronto Corporation Reported the Following