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Required informationSkip to question[The following information applies to the questions displayed below.] Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):      Sales $ 21,200Variable expenses   12,400Contribution margin   8,800Fixed expenses   6,952Operating income $ 1,84810. How many units must be sold to achieve a target profit of $5,324? (Do not round intermediate calculations.)

Question

Required informationSkip to question[The following information applies to the questions displayed below.] Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):      Sales 21,200Variableexpenses 12,400Contributionmargin 8,800Fixedexpenses 6,952Operatingincome 21,200Variable expenses   12,400Contribution margin   8,800Fixed expenses   6,952Operating income 1,84810. How many units must be sold to achieve a target profit of $5,324? (Do not round intermediate calculations.)

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Solution

To find out how many units must be sold to achieve a target profit, we first need to calculate the contribution margin per unit and then use the formula for the break-even point in units.

  1. Calculate the contribution margin per unit: Contribution margin is the sales revenue minus the variable costs. In this case, the contribution margin is 8,800.Sincethisisbasedonasalesvolumeof1,000units,thecontributionmarginperunitis8,800. Since this is based on a sales volume of 1,000 units, the contribution margin per unit is 8,800 / 1,000 = $8.8 per unit.

  2. Use the formula for the break-even point in units: The formula is (Fixed Costs + Target Profit) / Contribution Margin per Unit. In this case, the fixed costs are 6,952,thetargetprofitis6,952, the target profit is 5,324, and we just calculated the contribution margin per unit to be 8.8.So,thecalculationis(8.8. So, the calculation is (6,952 + 5,324)/5,324) / 8.8 = 1,397 units.

Therefore, Oslo Company must sell approximately 1,397 units to achieve a target profit of $5,324.

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