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Minden Company manufactures a high-quality wooden birdhouse that sells for $25 per unit. Variable costs are...

Minden Company manufactures a high-quality wooden birdhouse that sells for $25
per unit. Variable costs are $12 per unit, and fixed costs total $210,000. The
company sold 30,000 birdhouses to customers during 2020. The president of
Minden Company believes the following changes should be made in 2021:

1. the selling price of the birdhouse should be reduced by 20%

2. increase advertising by $33,000

Assume these changes are made. Calculate the number of units Minden Company
must sell in 2021 in order to earn a net income that is 40% larger than the
net income earned in 2020.


I'm sorry for posting this, I just wanted to make sure I got the right answer before I posted this homework. Kind of tricked me up a little.

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Minden
Income Statement- 2020 Amount $
Sell price                25.00
Less: Variable expenses                12.00
Contribution per unit                13.00
Number of units        30,000.00
Total Contribution      390,000.00
Fixed expense      210,000.00
Net Income
     180,000.00
Workings for 2021
Current Sell price                25.00
Reduction by 20%                  5.00
Sell price in 2021
               20.00
Sell price                20.00
Less: Variable expenses                12.00
Revised Contribution per unit in 2021                  8.00
Net Income      180,000.00
Increase by 40%        72,000.00
Revised Net Income for 2021      252,000.00
Target Contribution in 2021
Fixed expense      210,000.00
Advertising        33,000.00
Revised Net Income for 2021      252,000.00
Target Contribution in 2021      495,000.00
Revised Contribution per unit in 2021                  8.00
Units to be sold in 2021        61,875.00

ekkarill92 answered 1 year ago
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