Question

The required sales in units to achieve a target net income is:___________ (sales target net income)
1. divided by contribution margin per unit. (fixed cost target net income)
2. divided by contribution margin ratio. (fixed cost target net income)
3. divided by contribution margin per unit. (sales target net income)
4. divided by contribution margin ratio.

Answer 1

Answer:

3. divided by contribution margin per unit. (sales target net income)

Explanation:

In calculating the sales level in units needed to achive a certain net target income, this formula is applied:

Fixed cost + Targeted Income/Contribution margin per unit

Fixed cost: are all the cost that remains constant or unchanged for a longer period of time such as cost of rent, interest payments etc.

Contribution margin per unit: this refers to the difference between the selling price per unit and the variable cost per unit. This portion of the sales revenue covers (contributes to) the fixed costs.