Question 1: Jordan Company produces a product that has a variable cost of $28 per unit...

Question 1:

Jordan Company produces a product that has a variable cost of $28 per unit and a sales price of $60 per unit. The company’s annual fixed costs total $810,000. It had net income of $370,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $53 per unit.

Required

If Jordan desires to maintain net income of $370,000, how many additional units must it sell to justify the price decline?
Assume that in addition to lowering its selling price to $53, Jordan also desires to increase its net income by $80,000. Determine the number of units the company must sell to earn the desired income.

Question 2:

The Blanket Company (TBC) manufactures two types of blankets. One is made of nylon. The other is made of wool. The budgeted per-unit contribution margin for each product follows.

	Nylon			Wool
Sales price	$	140		$	192
Variable cost per unit		(70	)		(87	)
Contribution margin per unit	$	70		$	105

TBC expects to incur annual fixed costs of $666,000. The relative sales mix of the products is 80 percent for Nylon and 20 percent for Wool.

Required

Determine the total number of products (units of Nylon and Wool combined) TBC must sell to earn a $104,000 profit.
How many units each of Nylon and Wool blankets must TBC sell to earn a $104,000 profit?
Prepare an income statement using the contribution margin format.

Thank you, please explain how to solve.

Expert Solution

Number of Units required to be sold = (Desired Income + Fixed costs)/(Selling price per unit - variable cost per unit)
Before price decline = (370,000+810,000)/(60-28)	36,875	units
After price decrease	47,200	units

a. Hence, additional units required to be sold	10,325	units

b.Units required to be sold	50,400	units

	Nylon	Wool	Total
Sales Price	140	192
Variable cost per unit	-70	-87
Contribution Margin per unit	70	105	175
Sales Mix	80%	20%	100%
Weighted average Contribution Margin	56	21	77

Units required to be sold = (Desired Profit+Fixed costs)/Weighted average contribution margin per unit
=(666000+104000)/77
10000	units

Nylon	8000	Units
Wool	2000	Units

Income Statement
	Nylon	Wool	Total
Sales Revenue	1,120,000	384,000	1,504,000
Variable costs	(560,000)	(174,000)	(734,000)
Contribution Margin	560,000	210,000	770,000
Less: Fixed costs			666,000
Operating Income			104,000

ekkarill92 answered 1 year ago

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