Sunn Company manufactures a single product that sells for $180 per unit and whose variable costs are $135 per unit. The company’s annual fixed costs are $562,500. Management targets an annual income of $1,012,500.

 Sunn Company manufactures a single product that sells for $180 per unit and whose variable costs are $135 per unit. The company’s annual fixed costs are $562,500. Management targets an annual income of $1,012,500.



Explanation
(1)
Unit sales at target income = (Fixed costs + Target income) / Contribution margin per unit
= ($562,500 + 1,012,500) / $45
= 35,000 units

(2)
Dollar sales at target income = (Fixed costs + Target income) / Contribution margin ratio
= ($562,500 + 1,012,500) / 25%
= $6,300,000
(Alternatively: 35,000 units × $180 = $6,300,000)