Carolina Timber, Inc. produces flooring material. The monthly fixed costs are $10,000 per month. The unit sales price is $75, and variable cost per unit is $35. How many units should Carolina sell in order to earn $10,000 as operating income?
What will be an ideal response?
Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Unit contribution margin = Net sales revenue per unit - Variable costs per unit
Unit contribution margin = $75 - $35 = $40
Required sales in units = ($10,000 + $10,000) / $40 = 500 units
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