Workshape company sells office chairs at $400 per unit, incurs variable cost per unit of $150, and has a total fixed expense of $40,000.

how many units must be sold to achieve a target operating income of $60,000?
a. 180 units
b. 400 units
c. 200 units
d. 450 units
e. 275 units

Option B: 400 Units of chairs must be sold to earn a target operating income of $60,000

Explanation:

Number of Units to be sold to earn a Target Operating Income of $60,000

= (Target Operating Income + Total Fixed Expenses) ÷ Contribution Per Unit

Where: Contribution per unit = Selling Price per unit - Variable costs per unit

Selling Price per Chair               $400  

Variable Cost per Chair               $(150)

Contribution per Chair               $250  

Number of Units to be sold to earn a Target Operating Income of $60,000

= ($40,000 + 60,000) ÷ 250

= 400 Units of Chairs

                               Income Statement of Workshop

Sales Revenue ($400 ×400 Units)                 $160,000  

Less: Variable Costs ($150 × 400 Units)            $(60,000)

Contribution                                                        $100,000

Less: Fixed Expenses                                          $(40,000)

Target Operating Profit                                       $60,000

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