Question

Last year, Marissa sold 4,010 baskets, and she beliees that demand this year will be stable at 4,010 baskets. The following are the same actions Marissa could take if she wants to earn $28,700 in operating income by selling only 4,010 baskets.
Please solve for:

Raise selling price to $_________

Reduce variable costs to $__________

Reduce fixed costs to $_____________

Answer 1

Answer:

1.

4,130 basckets

2.

Raise selling price to $27.84

Reduce variable costs to $16.7

Reduce fixed costs to $$11,400

Explanation:

Breakeven point is th level of sales where business have no profit no loss situation.

Contribution margin = Contribution margin / selling price = ( Selling Price - Variable cost ) / selling price = $27 - $17 = $10

Target Sales  = ( Target Income + Fixed cost ) / Contribution margin ratio =   ( $28,700 + $12,600 ) / $10 = 4,130 basckets

Selling Price

Selling price = Target Revenue / Number of Units sold = $111,622 / 4,010 = $27.84

Variable cost

Sales volume = ( Target income + Fixed cost) / Contribution margin

4,010 units =  ( $28,700 + $12,600 ) / ( $27 - variable cost )

4,010 units = 41300 / ( $27 - variable cost )

$27 - variable cost = $41,300 / 4,010 units

$27 - variable cost = $10.3 per unit

Variable cost = $27 - 10.3 = $16.7

Fixed Cost

Sales volume = ( Target income + Fixed cost) / Contribution margin  

4,010 units =  ( $28,700 + Fixed cost ) / $10

4,010 x $10 = ( $28,700 + Fixed cost )

%$40,100 = $28,700 + Fixed cost

Fixed cost = $40100 - $28,700 = $11,400