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.

Question

Business

Isai

26 January, 09:27

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.

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Christine Brennan · Answer 1

4,200.

Explanation:

The operating income is the difference between the sales and total expenses. Total expense is the sum of the variable and fixed cost. Alternatively, sales less variable cost gives contribution margin. contribution margin less the fixed cost gives the net income. Let the number of units that must be sold to earn the targeted income be x

($60x) - ($21x) - $78,000 = $81,900

39x = $81,900 + $81,900

39x = $163,800

x = 4,200

The number of pairs of shoes Chillmax must sell to earn operating income of $81,900 is 4,200.