Question

Ten Toes produces sport socks. The company has fixed expenses of $ 75 comma 000 and variable expenses of $ 0.75 per package. Each package sells for $ 1.50. The number of packages Ten Toes needed to sell to earn a $ 24 comma 000 operating income was 132 comma 000 packages. If Ten Toes can decrease its variable costs to $ 0.55 per package by increasing its fixed costs to $ 90 comma 000​, how many packages will it have to sell to generate $ 24 comma 000 of operating​ income? Is this more or less than​ before? Why?

Answer 1

Answer:

The 2,118 units is sold more

Explanation:

For computing the number of unit sold to generate operating income, we have to compute the break in point in units that is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin per unit)

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $0.75 - $0.55

= $0.85

So, the break even point in units

=($90,000 + $24,000) ÷ ($0.85)

= 134,118 units

And, the given packages is 132,000

So, the number of units sold would be

= 134,118 units - 132,000 units

= 2,118 units

Therefore, the 2,118 units is sold more