A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the company wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ? Multiple Choice 24,000. 21,333. 18,666. 2,667. 20,000.

A. 24000 units

Explanation:

The break even units formula is:

Break even units = Fixed Cost

Contribution per unit

To compute the target profit units, we have to expand the break even formula and add Target profit in the numerator as:

Target profit units = Fixed Cost + Target Profit

Contribution per unit

Now, put the values in the formula accordingly to compute units to earn target profit:

Target profit units = 320,000 + 40,000

15

Target profit units = 24,000 units

24,000

Explanation:

The pretax income is the difference between the company's sales and total expense. The total expense is made up of the fixed and variable expense. The difference between the sales and variable expense gives the contribution margin.

The difference between sales and variable expense gives the contribution margin. While the contribution margin less fixed cost gives the pretax income.

Let the number of units to be sold be y

15y - $320,000 = $40,000

15y = $320,000 + $40,000

15y = $360,000

y = 24,000 units