Question

Amber Company had $153,200 of net income in 2016 when the selling price per unit was $153, the variable costs per unit were $93, and the fixed costs were $574,100. 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 $62,200 in 2017.

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 stockholders' 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 reacch the stockholders' desired profit level?

Answer 1

Answer and Explanation:

The computation is shown below:

1) Number of unit sold in 2016 is

As we know that

Total contribution margin is

= Fixed cost + Net income

= $153,200 + $574,100

= $727,300

And, the Contribution margin per unit is

= $153 - $93

= 60 per unit

So, the Number of unit sold in 2016 is

= $727,300 ÷ 60

= 12,122 Units

2) Number of unit sold is

= ($574,100 + $153,200 + $62,200) ÷ 60

= 13,158 Units

3) The selling price is

Break even = (Fixed cost + Desired profit) ÷ Contribution margin

12,122 = ($574,100 + $153,200 + $622,00) ÷ (X - $93)

12,122X - $1,127,346 = $789,500

12,122X = $1,916,846

X(Selling price) = $1,916,846 ÷ 12122

= $158 per unit