Units to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes

Question

Units to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense)Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense) Required: 1. Calculate the number of pairs of shoes Chillmax must sell to earn operating income of $81,900 2. Check your answer by preparing a contribution margin income statement based on the number of units calculated. Enter amounts as positive numbers. Chillmax Company Contribution Margin Income Statement At Target Pairs of Shoes Sold Total Sales Total variable cost Total contribution margin Total fixed cost Operating income

Explanation / Answer

Contribution margin=Sales-Variable cost

=(60-21)=$39

Target Contribution margin=Fixed costs+Target profits

=(78000+81900)=$159900

1.Number of pairs of shoes=(159900/39)=4100

2.

Sales(4100*60) 246000 Total variable cost(4100*21) 86100 Total Contribution margin $159900 Total fixed cost 78000 Operating income $81900.

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