How many units must be sold to earn a net income of $320,000?
Question:
A company desires to sell a sufficient quantity of products to earn a profit of $320,000. If the unit sales price is $32, unit variable cost is $12, and total fixed costs are $800,000, how many units must be sold to earn net income of $320,000?
a) 88000 units
b) 56000 units
c) 50000 units
d) 41000 units
Answer:
The company must sell 56,000 units to earn a net income of $320,000. Among the given answer options, the correct answer is 56,000 units.
To determine the number of units that must be sold to earn a net income of $320,000, we can use the following formula:
Net Income = (Unit Sales Price - Unit Variable Cost) * Number of Units - Total Fixed Costs
Given:
Unit Sales Price = $32
Unit Variable Cost = $12
Total Fixed Costs = $800,000
Net Income = $320,000
Let's plug in the values and solve for the number of units:
$320,000 = ($32 - $12) * Number of Units - $800,000
$320,000 = $20 * Number of Units - $800,000
$320,000 + $800,000 = $20 * Number of Units
$1,120,000 = $20 * Number of Units
Dividing both sides by $20:
Number of Units = $1,120,000 / $20
Number of Units = 56,000
Therefore, the company must sell 56,000 units to earn a net income of $320,000. Among the given answer options, the correct answer is 56,000 units.