Wu Manufacturing produces a single product that sells for $120. Variable costs per unit equal $35....

Wu Manufacturing produces a single product that sells for $120. Variable costs per unit equal $35. The company expects total fixed costs to be $68,000 for the next month at the projected sales level of 3,000 units. In an attempt to increase sales, management is considering an $51,250 increase in the monthly advertising expense.

Required:

By how many units must Wu’s sales increase to justify this additional advertising expenditure?

Expert Solution

Particulars	Amount
Sale Price	$120.00
Less: Variable Cost	$35.00
Contribution	$85.00

Total Fixed Cost	$68,000.00
Contribution per unit	$85.00
BEP Sales (in units)	800

Particulars	Amount
Sales	$3,60,000
Less: Variable Cost	$1,05,000
Contribution	$2,55,000
Less: Fixed Cost	$68,000
Profit	$1,87,000


Particulars	Amount
Expected Profit	$1,87,000
Add: Fixed Costs	$68,000
Add: Additional Advertisement Expense	$51,250
Required Contribution	$3,06,250
Contribution per Unit	$85
Revised BEP( in units)	3,603
Less: Existing BEP (in units)	3,000
Additional units to be sold	603

ekkarill92 answered 7 months ago

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