Question

Cullumber company had $170,000 of net income in 2021 when the selling price per unit was $152, the variable costs per unit were $96, and the fixed costs were $574,800. management expects per unit data and total fixed costs to remain the same in 2022. the president of cullumber company is under pressure from stockholders to increase net income by $106,400 in 2022.

Answer 1

The number of units sold in 2021 = 13,300 units.

The number of units that would have to be sold in 2022 to reach the stockholder's desired profit level = 15,200 units.

Assuming that Cullumber company sells the same number of units in 2022 as it did in 2021, the selling price in order to reach the stockholder's desired profit level = $160.

The net income of a company is its profit function, derived by the formula:

Profit = Sales - Cost.

Sales are the product of the number of units sold and per unit selling price.

Cost is the sum of fixed costs and the product of the number of units produced to the variable cost per unit.

Assuming the number of units sold in 2021 to be x,

we can say sales = $152x, and

cost = ${574800 + 96x}.

Therefore, profit = sales - cost,

or, 170000 = 152x - {574800 + 96x},

or, 170000 = 56x - 574800

or, 56x = 574800 + 170000 = 744800,

or, x = 744800/56 = 13300.

Therefore, the number of units sold in 2021 was 13,300.

In 2022, the desired profit = $170,000 + $106,400 = $276,400.

Assuming the number of units sold in 2022 to be n, at the same unit data and fixed cost, we can say that:

Sales = $152n, and

Cost = ${574800 + 96n}.

Therefore, profit  sales - cost,

or, 276400 = 152n - {574800 + 96n},

or, 276400 = 56n - 574800,

or, 56n = 574800 + 276400 = 851200,

or, n = 851200/56 = 15200.

Therefore, the number of units sold in 2022 should be 15,200 to reach the desired profit of the stakeholders.

When the number of units sold in 2022 is the same as in 2021, that is, the number of units = 13,300, we assume the per unit selling price to be $P.

Now we can say that,

Sales = $13300P.

Costs = ${574800 + 96*13300} = ${574800 + 1276800} = $1851600.

Therefore, profit = sales - cost,

or, 276400 = 13300P - 1851600,

or, 13300P = 1851600 + 276400 = 2128000,

or, P = 2128000/13300 = 160.

Therefore, the new selling price per unit to reach stockholders' desired profit, assuming the number of units sold in 2022 to be the same as in 2021 is $160.

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