Which formula is used to determine target sales in units?

The formula that determines target sales in units is the one that combines fixed expenses and operating income with the contribution margin per unit. This approach is grounded in cost-volume-profit analysis, where the objective is to cover all fixed expenses and achieve a desired level of operating income.

By using fixed expenses plus the desired operating income, the formula sets a target that encompasses both the costs that do not change with production levels (the fixed expenses) and the profit that is sought (operating income). The contribution margin per unit is critical because it indicates how much each unit sold contributes towards covering fixed costs and generating profit. When you divide the total required amount (fixed expenses plus operating income) by the contribution margin per unit, you effectively determine how many units need to be sold to reach that financial goal.

This formula is a straightforward application of the relationship between costs, volume, and profit, which is essential for effective financial planning and decision-making in a business context. It provides the clarity and strategy necessary for managers to set realistic sales targets.