Question

In: Accounting

Given: Sales, $51,000; variable expenses, $18,000; fixed expenses, $18,000; net income, $15,000. Assume no change in...

Given: Sales, $51,000; variable expenses, $18,000; fixed expenses, $18,000; net income, $15,000. Assume no change in selling price; find net income if activity volume increases by 20%.
Given: Selling price per unit, $48; total fixed expenses; 106,000; variable expenses per unit; $36. Assume that variable expenses are reduced by 25% per unit, and the total fixed expenses are increased by 15%. Find the sales in units to achieve a profit of $23,000, assuming no change in selling price

Expert Solution

1) sales = $51,000

Less: Variable expenses = $18,000

Equals: Contribution margin = $33,000

Less: Fixed expenses = $18,000

Equal: Net Income = $15,000

If Activity volume increases by 20%, Total sales and variable expenses increases by 20%.

New sales ($51,000 * 120%) = $61,200

Less: New variable expenses ($18,000 * 120%) = $21,600

Equals: Contribution margin = $39,600

Less: Fixed expenses = $18,000

Net Income = $21,600

2) Selling price = $48

Variable expenses (revised) [$36 * 75%] = $27

So, contribution margin per unit = $48 - $27 = $21

Fixed expenses ($106,000 * 115%) = $121,900

Desired sales in units = [Fixed cost + desired profit] / contribution margin per unit

Desired sales in units = [$121,900 + $23,000] / $21

Desired sales in units = 6,900 units.

ekkarill92 answered 2 years ago

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