How many units must be sold each month to earn a monthly operating income of $8,000? (Round your final answer up to the nearest whole number. )
A)971 units
B)1,442 units
C)122,500 units
D)353 units

Question

Quizplus · Accepted Answer

To determine the number of units that must be sold each month to earn a monthly operating income of $8,000, you would need to use the contribution margin ratio. If the contribution margin per unit is $8 and the fixed costs are $4,000, then the contribution margin ratio is 0.5 (8/16). To find the break-even point in units, you would divide the fixed costs by the contribution margin ratio (4,000/0.5 = 8,000). Therefore, 8,000 units must be sold at the current price to break even. To earn a monthly operating income of $8,000, the total profit target would be $12,000 (8,000 break-even point + 8,000 target profit). To find the number of units needed to achieve this target profit, you would divide the total profit target by the contribution margin per unit (12,000/8 = 1,500 units). However, this is the number of units needed to achieve the target profit, so the actual number of units that must be sold each month to earn a monthly operating income of $8,000 would be slightly higher. Round up to the nearest whole number, and you get B) 1,442 units.

How Many Units Must Be Sold Each Month to Earn