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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
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. Calculate the number of pairs of shoes Chillmax must sell to earn operating income of $81,900.
- 2. Check your answer by preparing a contribution margin income statement based on the number of units calculated.
1.
Compute the number of pairs of shoes that the company must sell to earn the operating income of $81,900.
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:
Substitute $78,000 for the fixed cost, $81,900 for target profit and $39 for contribution margin per unit in the following formula.
2.
Construct the contribution margin income statement.
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