Question

Pauley Company provides home health care. Pauley charges $35 per hour for the professional care. The variable costs are $21 per hour and the fixed costs are $78,000. Next year, Pauley would like to earn an operating income of $37,500. How many hours of the professional care must Pauley provide to achieve the target income? a.5,571 hours b.3,714 hours c.8,250 hours d.2,679 hours e.5,500 hours

Answer 1

Answer:

c.8,250 hours

Explanation:

The computation is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin per unit)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $35 - $21

= $14

Now the number of hours to achieve the target income is

= ($78,000 + $37,500) ÷ ($14)

= 8,250 hours

We simply applied the above formula