Question

The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year: Sales (50,000 units) $1,000,000 Costs: Direct materials $270,000 Direct labor 240,000 l'ixed factory overhead Variable factory overhead Fixed marketing costs Variable marketing costs 100,000 150,000 110,000 50.000 920,000 $ 80,000 Pretax income If Griffith Corporation's income tax rate is 40%, compute the number of units that must be sold in order to achieve a target pretax income of $130,000. Select one: a. 53,165. b. 81,250. c. 36,207. d. 50,000. e. 58,621.

Answer 1

Sales per unit ($1,000,000/50,000)	$20
Less: Variable cost per unit:
Direct material ($270,000/50,000)	$5.40
Direct labor ($240,000/50,000)	$4.80
Variable factory overhead ($150,000/50,000)	$3.00
Variable marketing cost ($50,000/50,000)	$1.00
Total variable cost per unit	$14.20
Contribution margin per unit	$5.80
Fixed cost:
Factory overhead	$100,000
Marketing cost	$110,000
Total fixed cost	$210,000

Target pretax income = (Contribution margin per unit x Number of units) – Total Fixed cost

$ 130,000 = ($ 5.80 x Number of units) - $ 210,000

$ 5.80 x Number of units = $ 130,000 + $ 210,000

= $ 340,000

Number of units = $ 340,000 /$ 5.80

                           = 58,620.69 or 58,621                   

Hence option “e. 58,621” is correct answer.