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GiGi Inc. has a targeted operating income of $518,000 for next year. They have set a...

GiGi Inc. has a targeted operating income of $518,000 for next year. They have set a selling price at $40.50 each. The variable cost per item is $12.50. The fixed costs are $182,000.

What is the contribution margin per unit?

What is the break even in units?

How many units need to be sold to reach the targeted operating income?

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Answer #1

1) Contribution margin per unit = Selling price per unit - Variable cost per unit = $40.50 - $12.50 = $28.00

2) Break even in units = Total fixed cost / Contribution margin per unit = $182,000 / $28.00 = 6,500 units

3) Unit sales at target income = (Total fixed cost + Targeted operating income) / Contribution margin per unit = ($182,000 + $518,000) / $28.00 = 25,000 units

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