Question

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Flannigan Company management targets an annual pre-tax income of $1,125,000. Compute the unit sales to earn the target pre-tax net income.

Answer 1

Answer:

d. 10,694 units

Explanation:

We calculate the break even units by using formula:

Break even units =                                   Fixed Cost                                  

                                             Sales per unit - Variable Cost per unit

We just add the target profit in break even formula to calculate how much units needs to be sold to calculate the target profit.

Target Profit Units =              Fixed Cost + Target Profit          

                                     Sales per unit - Variable Cost per unit

Now simply put the values into the formulas:

Target Profit Units =    800,000 + 1,125,000

                                         450 - 270

Target Profit Units = 1,925,000

                                      180

Target Profit Units =  10,694 units