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.

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.