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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Units to Earn Target Income

Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense).

Required:

  1. 1. Calculate the number of pairs of shoes Chillmax must sell to earn operating income of $81,900.
  2. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculated.

1.

To determine

Compute the number of pairs of shoes that the company must sell to earn the operating income of $81,900.

Explanation

Operating Income:

The amount of income earned before charging any interest and tax is known as operating income. It is calculated by deducting the amount of expense by the sales revenue.

Use the following formula to calculate the number of units:

Units to be sold=(Fixed cost+Target profit)Contribution margin per unit1

Substitute $78,000 for the fixed cost, $81,900 for target profit and $39 for contribution margin per unit in the following formula.

Units to be sold=($78,000+$81,900)$39

2.

To determine

Construct the contribution margin income statement.

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