Which formula calculates how many units would be necessary to reach a target level of net income?

The formula to determine how many units are necessary to achieve a target level of net income involves understanding how fixed costs and contribution margin interact. Contribution margin per unit is defined as the selling price per unit minus variable costs per unit.

To reach a target net income, a company must first account for its fixed costs—these are costs that do not change with production levels and must be covered regardless of sales volume. Once fixed costs are covered, any additional contribution margin generated from additional units sold contributes directly to net income. Therefore, to determine the number of units needed to meet a desired profit, you sum the total fixed costs and the target net income together to find the total contribution margin required, and then divide that by the contribution margin per unit.

This formula captures the necessary relationship between fixed costs, target net income, and the contribution margin, providing an accurate method for determining how many units must be sold to meet financial goals.