Question

Brandy’s Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000?

Answer 1

Answer:

The answer is: 1,375 balloon bundles

Explanation:

We can calculate how many balloon bundles must be sold using the following formulas:

• contribution margin per unit =  Selling price per unit – Variable cost per unit
• Units = (Fixed costs + Target profit) / (contribution margin per unit)

Contribution margin per unit = $10 - $2 = $8

units = ($5,000 + $6,000) / $8 = $11,000 / $8 = 1,375 units