3. An airline company operates a plane between ATL and DC. This plane has 120 seats for economy class with two price tiers: low
1 answer:
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Answer:
A) 13,500 units
B) 14,630 units
C) $156 is the selling price.
Explanation:
A) Number of units sold = Total sales/selling price per unit
Given,
Operating profit (Net income) = $234,200
Selling price per unit = $151
Variable cost per unit = $91
Contribution margin per unit = $(151-91) = $60
With the help of contribution approach, we can find the total sales.
Per Unit Total Cost
Selling price $151
Less: Variable cost <u> 91 </u>
Contribution Margin(1) $60 $810,000
Less: Fixed cost <u> $575,800</u>
Net Income $234,200
Note: 1) Contribution Margin - Fixed cost = Net income
Contribution Margin = Net income + fixed cost
Contribution Margin = $234,200 + 575,800
Contribution Margin = $810,000
Total number of units = Contribution Margin/Contribution margin per unit
Total number of units sold = $810,000/$60
Total number of units sold = 13,500 units
B) We know,
Desired sales unit =
Given, as the selling price, variable cost and fixed cost remain same in 2020. Therefore,
Selling price per unit = $151
Variable cost per unit = $91
Fixed cost = $575,800
Targeted profit = $67,500 + 234,500 = $302,000
Therefore, desired sales unit =
Desired sales unit = 14,630 units need to be sold in 2020.
C) If the company wants to sell 13,500 units but wants to achieve $(234,200+67,500) = $302,000 amount of profit, the company has to increase its selling price. Because the company cannot change the fixed cost.
Therefore,
Contribution Margin - Fixed cost = Net income
or, Contribution Margin = Net income + fixed cost
or, Contribution Margin = $302,000 + 575,800 = $877,800
Therefore, contribution margin per unit =
Contribution margin per unit = $65
As the variable cost will not be changed, the selling price should be -
Selling price - variable expense per unit = Contribution margin per unit
Selling price = Contribution margin per unit + variable expense per unit
Selling price/unit = $65 + $91 = $156