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29 July, 22:44

Locus Company has total fixed costs of $117,500. Its product sells for $53 per unit and variable costs amount to $43 per unit. Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?

a. 11,600.

b. 9,083.

c. 3,480.

d. 42,971.

e. 15,080.

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  1. 30 July, 01:17
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    12,925 units

    Explanation:

    Given,

    Fixed expense = $117,500

    If pretax income is 10% of fixed cost, the expected net operating income = $117,500 * 10% = $11,750.

    Contribution margin per unit = $53 - $43 = $10.

    We know,

    Expected sales (units) = (Fixed expense + Target profit) : Contribution Margin per unit

    Expected sales (units) = ($117,500 + $11,750) : $10

    Expected sales (units) = $129,250 : $10

    Expected sales (units) = 12,925 units

    As there is no information related to the next year, we will use current year information to find expected sales volume.
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