Locus Company has total fixed costs of $119,000. Its product sells for $59 per unit and variable costs amount to $45 per unit. Next year Locus Company wishes to earn a pretax income that equals 35% of fixed costs. How many units must be sold to achieve this target income level?

11,475

Explanation:

The targeted pretax income is the difference between the targeted sales and the total expense incurred. The total expense is the sum of the fixed and variable expenses.

The variable expense and sales are a function of the level of activity or units produced and sold.

Pretax income = 35% × $119,00

= $41,650

Let the level of activities be t

59t - 45t - 119,000 = 41,650

14t = 41650  + 119,000

14t = 160,650

t = 11,475

The units that must be sold to achieve this target income level is 11,475

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