Question

Pittsboro Corporation produces and sells a single product. Data for that product are: Sales price per unit $590​ Variable cost per unit $190​ Fixed expenses for the month $1,200,000​ Currently selling 4000 unitsManagement is discussing increasing the price to $625 to cover an increase in fixed expenses of $89,000. Management believes they might lose 2% of sales per month. How many units per month would the company have to sell to maintain its current level of operating income?

Answer 1

Answer:

The company will need to sale 3,883 units to maintain its current operating income of 400,000

Explanation:

We will calculate the point at which the company mantains his current income in units at the new scenario:

$\frac{Fixed\:Cost + target \: income}{Contribution \:Margin} = Break\: Even\: Point_{units}$

Where:

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

625 - 190 = 435 each units contributes this amount to afford the fixed cost and make a gain.

Current income: contribution x units sold - fixed cost

                             (590-190) x 4,000 - 1,200,000 = 400,000

(1,200,000 + 89,000 + 400,000) / 435 = 3,882.75862 = 3,883 units

The company will need to sale 3,883 units to maintain its current operating income of 400,000