Question

The Bonneville Company recently sold 2,200 units and had total sales of $143,000. During the same time the company reported variable costs per unit of $35 and net income of $60,000. If the company's price per unit were increased by $5 and its volume decreased by 200 units, what would be the company's projected net income?

Answer 1

Answer:

The company's projected net income is $64,000

Explanation:

We know that,

The net income = Sales - variable cost - fixed cost

In the question, the fixed cost is not given, so first we have to find out

Putting the values to the above formula,

So, the fixed cost would be

$60,000 = $143,000 - $77,000 - fixed cost

$60,000 = $66,000  - fixed cost

So, the fixed cost = $6,000

The variable cost = Number of units sold × variable costs per unit

                             = 2,200 units × $35

                             = $77,000

The price per unit would be equal to

= (Total sales) ÷ (number of units sold)

= $143,000 ÷ 2,200 units

= $65

New sale per unit = $65 + $5 = $70

New units = 2,200 units - 200 units = 2,000 units

So, the new sales would be

= Sale price per unit × number of units sold

= $70 × 2,000 units

= $140,000

The variable cost = Number of units sold × variable costs per unit

                             = 2,000 units × $35

                             = $70,000

So, the net income would be

= $140,000 - $70,000 - $6,000

= $64,000