Duke Corporation sells fans for $20 per unit. In 2011, fixed costs are expected to be $450,000, and the variable cost ratio is 60%. How many fans must Duke sell to generate operating income of $60,000?

Question

Quizplus · Accepted Answer

To find the number of fans Duke must sell, we use the formula: Required sales in units = (Fixed Costs + Desired Operating Income) / Contribution Margin per Unit. The contribution margin per unit is calculated as Selling Price per Unit - Variable Cost per Unit. Here, the variable cost per unit is 60% of $20, which is $12. Therefore, the contribution margin per unit is $20 - $12 = $8. Plugging in the numbers: (450,000 + 60,000) / 8 = 63,750 fans.

Duke Corporation Sells Fans for $20 Per Unit