Question

Given the following data: Per Unit Total Sales $ 19 $ 51,300 Less variable expenses 12 32,400 Contribution margin 7 18,900 Less fixed expenses 12,500 Operating profit $ 6,400 If sales decrease by 300 units, by what percent would fixed costs have to be reduced in order to maintain current operating profit

Answer 1

Answer:

%decrease= 16.8%

Explanation:

Giving the following information:

Sales $51,300 (51,300/19= 2,700 units)

Less variable expenses= 32,400 ($12 per unit)

Fixed expenses 12,500

Operating profit $ 6,400

We have to maintain an operating profit of $6,400.

The fixed costs must decrease by an equal amount as the contribution margin. First, we need to calculate the decrease in the total contribution margin.

Decrease in contribution margin= 300 units* (19 - 12)= $2,100

Decrease in fixed costs= $2,100

%decrease= (2,100/12,500)*100= 16.8%