Question

YUX Corporation sells a single product for $50. Its management estimates the following revenues and costs for the year 2020:

Net sales		$525,000		Selling expenses—variable		$20,300
Direct materials		148,000		Selling expenses—fixed		18,600
Direct labour		65,900		Administrative expenses—variable		10,000
Manufacturing overhead—variable		18,300		Administrative expenses—fixed		10,800
Manufacturing overhead—fixed		17,400

A.

Determine the percentage increase in annual profits if YUX Corporation increases its selling price by 20% and all other factors (including demand) remain constant. (Round answer to 2 decimal places, e.g. 15.25%.)

Percent increase in profit

%

Answer 1

Requirement A:

Percent increase in profit

107.38

%

Calculations:

Income statement (at normal selling price)
Net sales		525,000
Variable costs:
Direct materials	148,000
Direct labour	65,900
Manufacturing overhead—variable	18,300
Administrative expenses—variable	10,000
Selling expenses—variable	20,300
Total variable costs		262,500
Contribution margin		262,500
Fixed costs:
Manufacturing overhead—fixed	17,400
Administrative expenses—fixed	10,800
Selling expenses—fixed	18,600
Total fixed costs		46,800
Net income		215,700

1. Contribution margin percentage = Contribution margin ÷ Net sales = $262,500 ÷ $525,000 = 0.50 or 50
2. Number of units sold= $525,000 ÷ $50 = 10,500
3. New contribution margin = New net sales x 50% = [10,500 x ($50x120%)] = $630,000
4. New profit = New contribution margin - Total fixed costs = $630,000 - $46,800 = $583,200
5. Percent increase in profit = (New profit - Current profit) ÷ Current profit ($583,200 - $215,700) ÷ $215,700 = $367,500 ÷ $215,700 = 1.7038 or 107.38%