In 2012, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000. Variable...

In 2012, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000. Variable expenses were $300 per unit, and fixed expenses were $150,000. The same selling price is expected for 2013. Raleigh’s variable cost per unit will rise by 10% in 2013 due to increasing material costs, so they are tentatively planning to cut fixed costs by $15,000. How many units must Raleigh sell in 2013 to maintain the same income level as 2012?

a. 794

b. 971

c. 1,176

d. 1,088

Expert Solution

d. 1,088

Working:

a.
	in 2013,

	Selling Price	=					$ 500
	Variable Cost	=	$ 300	x	1.10	=	$ 330
	Fixed Expense	=	$ 1,50,000	-	15000	=	$ 1,35,000
	Target Net Income	=					$ 50,000

b.
	Contribution margin per unit		=	Selling Price		-	Variable Cost
			=	$ 500		-	$ 330
			=	$ 170

c.	Fixed Expense		$ 1,35,000
	Target Income		$ 50,000

	Target Contribution		$ 1,85,000
	/Contribution Margin per unit		$ 170

	Target Units sold		1088

ekkarill92 answered 2 years ago

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