Adding fixed costs to target operating income and dividing the sum by the unit contribution margin calculates _________?
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Answer: A. quantity of units required to sold
Explanation
Adding fixed costs to target operating income gives total revenue needed to cover expenses and profit goals. Dividing this total sum by the unit contribution margin determines exactly how many units must be sold. This target income formula expands basic breakeven analysis to incorporate specific managerial profit objectives. Target operating income is the desired profit level set by management for a specific accounting period. The unit contribution margin represents the profit contribution each single item provides after variable costs. Cost-volume-profit analysis assumes linear relationships between revenues, costs, and production volume.
Corporate planners use this calculation during budgeting season to establish sales quotas for the sales team. Entrepreneurs rely on target volume formulas to evaluate whether a new business idea can generate sufficient profit. Evaluating required sales quantities helps companies manage production capacity and inventory levels effectively. Selling of units is grammatically awkward and fails to describe the mathematical calculation of required volume. Sold units refers to historical sales results rather than the forward-looking target calculation required here. Contributed units is not a standard cost accounting term used in profit planning formulas.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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Answer: A. breakeven revenue
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Answer: D. sales mix variance
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