Hughes Company manufactures harmonicas which it sells for $ 32 each. Variable costs for each unit are $ 14 and total fixed costs are $ 3 comma 800. How many units must be sold to earn income of $ 7 comma 000?

To earn an income of $7000, Hughes company must sell 600 units.

Explanation:

The income required of 7000 can also be referred to as target profit. The break even point in units is calculated by dividing the fixed costs by the contribution margin per unit. Break even point is the point when Revenue equals cost and there is no profit or no loss. Above this point is profit region.

Break even point in units = Fixed cost / contribution margin per unit

Where the contribution margin per unit = Selling price per unit - Variable cost per unit

To calculate the units required to earn a profit/income of 7000, we will use the target profit formula which is simply, Fixed costs + target profit divided by contribution margin per unit

Units required for Target profit = (Fixed costs + target profit) / Contribution margin per unit

Contribution margin per unit = 32 - 14 = 18

Units required for target profit = (3800 + 7000) / 18  =  600 units

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