Question

Wildhorse Company had $278,700 of net income in 2019 when the selling price per unit was $154, the variable costs per unit were $94, and the fixed costs were $573,300. Management expects per unit data and total fixed costs to remain the same in 2020. The president of Wildhorse Company is under pressure from stockholders to increase net income by $42,600 in 2020.

A.)Compute the number of units sold in 2019.
B.)Compute the number of units that would have to be sold in 2020 to reach the stockholders’ desired profit level.

C.)Assume that Wildhorse Company sells the same number of units in 2020 as it did in 2019. What would the selling price have to be in order to reach the stockholders’ desired profit level? New selling price

Answer 1

· All working forms part of the answer

· Requirements asked

A	Net Income 2019	$278,700
B	Fixed Costs	$573,300
C = A+B	Total Contribution margin - 2019	$852,000
D	Selling price per unit	$154
E	Variable cost per unit	$94
F = D-E	Contribution margin per unit	$60
G = C/F	No. of units sold in 2019	14200	Answer [A]
A = 278700 + 42600	Desired Net Income	$321,300
B	Fixed Costs	$573,300
C = A+B	Total contribution margin required	$894,600
D	Contribution margin per unit	$60
E = C/D	No. of units that would be sold in 2020	14910	Answer [B]
	Total contribution margin required in 2020	$894,600
	Contribution margin per unit	Sales - $ 94
	Total Contribution margin if 2019's units are sold	14200 units x ($ Sales - $ 94)
	14200 sales - 1334800
	Equation:	$ 894600 = 14200 sales - 1334800
		894600 + 1334800 = 14200 sales
		2229400 = 14200 sales
		Sales = $ 2229400 / 14200
		Sales = $ 157 per unit	Answer [C]