Question

Net Income Planning Nolden Company has charged a selling price of $24 per unit, incurred variable costs of $15 per unit, and total fixed costs of $108,000. What unit sales volume is necessary to earn the following related amounts of net income before income tax? a. $18,000; b. $27,000; or c. equal to 20% of sales revenue. Round UP answers to the nearest unit, when applicable. (a) Answer units (b) Answer units (c) Answer units

Answer 1

Ans. A	*Calculations for contribution margin per unit :
	Contribution margin per unit = Selling price per unit - Variable cost per unit
	$24 - $15
	$9.00	per unit
	*Calculations for units required for target profit of $18,000 :
	Unit sales for target profit   =   (Fixed expense + Target profit) / Contribution margin per unit
	($108,000 + $18,000) / $9
	$126,000 / $9
	14,000 units
Ans. B	*Calculations for units required for target profit of $27,000 :
	Unit sales for target profit   =   (Fixed expense + Target profit) / Contribution margin per unit
	($108,000 + $27,000) / $9
	$135,000 / $9
	15,000 units
Ans. C	*Calculations for contribution margin ratio :
	Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100
	$9 / $24 * 100
	37.50%
	*Calculations for units required for 20% target profit on sales :
	We assumed that the required number of units sold is X .
	Total sales on target profit = Selling price * Sales units
	$24 * X   = $24 X
	Target profit = Total sales * 20%
	$24 X * 20%
	$4.80 X
	Total sales for target profit   =   (Fixed expense + Target profit) / Contribution margin ratio
	$24 X = ($108,000 + $4.80 X) / 37.50%
	$24 X * 37.50% = $108,000 + $4.80 X
	9 X = $108,000 + $4.8 X
	$9 X - $4.80 X = $108,000
	$4.20 X = $108,000
	25,714 units