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17 March, 22:36

Locus Company has total fixed costs of $118,000. Its product sells for $55 per unit and variable costs amount to $39 per unit. Next year Locus Company wishes to earn a pretax income that equals 20% of fixed costs. How many units must be sold to achieve this target income level?

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  1. 18 March, 00:05
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    8,850 units

    Explanation:

    We know that

    Net income = Unit sales * (Selling price per unit - variable cost per unit) - Fixed cost

    $23,600 = Unit sales * ($55 - $39) - $118,000

    $23,600 = Unit sales * $16 - $118,000

    $23,600 + $118,000 = $16 unit sales

    So, unit sales = 8,850 units

    The net income is computed below:

    = Given percentage * Total fixed cost

    = 20% * $118,000

    = $23,600
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