Question

In 2019, Sheffield sold 1000 units at $500 each, and earned net income of $40000. Variable expenses were $400 per unit, and fixed expenses were $110000. The same selling price is expected for 2020. Sheffield’s variable cost per unit will rise by 10% in 2020 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10000. How many units must Sheffield sell in 2020 to maintain the same income level as 2019?
a. 2333
b. 1556
c. 1000
d. 1167

Answer 1

Answer:

correct option is a. 2333

Explanation:

solution

we know here Expected Variable Cost per unit is  

Expected Variable Cost per unit= $400 + ($400 × 10%)

Expected Variable Cost per unit = $440

Expected Fixed Cost = $110,000 - $10,000

Expected Fixed Cost = $100,000

Selling Price = $500 per unit

so

we consider number of units to be sold to earn Net Income of $40,000 will be  X Units

so equation will be

Net Income = Sales - Variable Expenses - Fixed Cost     ..................1

put here value we get

$40,000 = ($500 × X) - ($440 × X) - $100,000

X = 2333.33

X = 2333 units

so correct option is a. 2333