Question

6. Hirt Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit. How many units must the company sell to generate net operating income of $80,000?

Answer 1

Answer:

net operating income of $80,000

Explanation:

To find out how many units the company must sell to generate a net operating income of $80,000, we can use the contribution margin approach.

First, let's calculate the contribution margin per unit:

Contribution Margin per Unit = Selling Price per Unit - Variable Expenses per Unit

Contribution Margin per Unit = $12 - $8

Contribution Margin per Unit = $4

Now, let's calculate the total contribution margin required to generate a net operating income of $80,000:

Total Contribution Margin = Net Operating Income + Fixed Expenses

Total Contribution Margin = $80,000 + $400,000

Total Contribution Margin = $480,000

Now, we can calculate the number of units required:

Number of Units = Total Contribution Margin / Contribution Margin per Unit

Number of Units = $480,000 / $4

Number of Units = 120,000 units

So, the company must sell 120,000 units to generate a net operating income of $80,000.