Question

Naylor Company had $210,000 of net income in 2013 when the selling price per unit was $150, the variable costs per unit were $90, and the fixed costs were $570,000. Management expects per unit data and total fixed costs to remain the same in 2014. The president of Naylor Company is under pressure from stockholders to increase net income by $52,000 in 2014.Instructions(a) Compute the number of units sold in 2013.(b) Compute the number of units that would have to be sold in 2014 to reach the stockholders’ desired profit level.(c) Assume that Naylor Company sells the same number of units in 2014

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the number of units sold in 2013:

Units sold= (net income + fixed costs) / unitary contribution margin

Units sold= (210,000 + 570,000) / (150 - 90)

Units sold= 13,000

Now, to calculate the number of units to reach $262,000 in profit, we need to use the following formula:

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= (570,000 + 262,000) / 60

Break-even point in units= 13,866.67 = 13,867

Easier:

Number of units= increase in profit / unitary contribution margin

Number of units= 866.67 = 867 increase

If the company sold the same number of units, net income would be the same. Nothing has changed.