Question

In 2019, Vaughn sold 1000 units at $500 each, and earned net income of $40000. Variable expenses were $300 per unit, and fixed expenses were $240000. The same selling price is expected for 2020. Vaughn’s variable cost per unit will rise by 10% in 2020 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10000. How many units must Vaughn sell in 2020 to maintain the same income level as 2019?

Answer 1

Answer:

Vaughn must sell  1588 Units in 2020 to maintain the same income level as 2019

Explanation:

Selling price for 2020 = 500 per unit

Variable cost for 2020 = 300 x 10% + 300

                                       = 300 x 0.1 + 300

                                          = 30 + 300

                                            = 330 per unit

Fixed cost for 2020 = 240000-10000

                                  = 230000

Required unit = (Fixed cost+Net income)/Contribution margin per unit

                     = (230000+40000) / (500-330)

                     = 270000 / 170

                     = 1588.24

Required unit = 1588 Units