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In: Accounting

E11-14 Naylor Company had $210,000 of net income in 2016 when the selling price per unit...

E11-14 Naylor Company had $210,000 of net income in 2016 when the selling price per unit was $150, the variable costs per unit were $90, and the fixed costs were $570,000.Management expects per unit data and total fixed costs to remain the same in 2017. The president of Naylor Company is under pressure from stockholders to increase net income by $52,000 in 2017.

Instructions(a) Compute the number of units sold in 2016.

(b) Compute the number of units that would have to be sold in 2017 to reach the stock-holders’ desired profit level

(c) Assume that Naylor Company sells the same number of units in 2017 as it did in 2016. What would the selling price have to be in order to reach the stockholders’ desired profit level?

Solutions

Expert Solution

(a)-The number of units sold in 2016.

The number of units sold in 2016 = Total contribution margin / Contribution margin per unit

= [Fixed costs + Net Income] / [Selling price per unit – Variable cost per unit]

= [$570,000 + $210,000] / [$150 - $90]

= $780,000 / $60 per unit

= 13,000 units

(b)-The number of units that would have to be sold in 2017 to reach the stock-holders’ desired profit level

The number of units that would have to be sold in 2017 to reach the stock-holders’ desired profit level = [Fixed costs + Net Income + Desired profit] / Contribution margin per unit

= [$570,000 + $210,000 + $52,000] / $60 per unit

= $832,000 / $60 per unit

= 13,867 units

(c)-New selling price per unit in order to reach the stockholders’ desired profit level

New selling price per unit in order to reach the stockholders’ desired profit level

= Total sales required / Number of units sold

= [Desired net income + Total fixed costs + Total variable costs] / Number of units sold

= [($210,000 + $52,000) + $570,000 + (13,000 units x $90 per unit)] / 13,000 units

= [$262,000 + $570,000 + $1,170,000] / 13,000 units

= $2,002,000 / 13,000 units

= $154.00 per unit

ekkarill92 answered 1 year ago
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