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 1,84810. How many units must be sold to achieve a target profit of $5,324? (Do not round intermediate calculations.)
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.
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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 / 1,000 = $8.8 per unit.
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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 5,324, and we just calculated the contribution margin per unit to be 6,952 + 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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