Question

Naylor Company had $153,300 of net income in 2016 when the selling price per unit was $150, the variable costs per unit were $90, and the fixed costs were $575,800. Management expects per unit data and total fixed costs to remain the same in 2017. The president of Naylor Company is under pressure from stockholders to increase net income by $65,200 in 2017.
1. Compute the number of units sold in 2016. (Round answer to 0 decimal places, e.g. 1,225.)
2. Compute the number of units that would have to be sold in 2017 to reach the stockholders' desired profit level.
3. Assume that Naylor Company sells the same number of units in 2017 as it did in 2016. What would the selling price have to be in order to reach the stockholders? (Round answer to 2 decimal places, e.g. 12.25.)

Answer 1

Answer:

Naylor Company

1. The number of units sold in 2016 is:

= 12,152.

2. The number of units that would have to be sold in 2017 to reach the stockholders' desired profit level is:

= 13,238.

3. Assuming that Naylor Company sells the same number of units in 2017 as it did in 2016, the selling price have to increase to $155.37 in order to reach the stockholders' desired profit level.

Explanation:

a) Data and Calculations:

Net income in 2016 = $153,300

Selling price per unit = $150

Variable costs per unit = $90

Contribution margin per unit = $60

Fixed costs = $575,800

Contribution margin = Fixed costs + Net income

= $575,800 + $153,300

= $729,100

Units sold = $729,100/$60 = 12,152

b) To increase net income by $65,200 in 2017, contribution margin will also increase by the same amount.  Therefore, the total contribution margin = $794,300 ($729,100 + $65,200).

Units sold = $794,300/$60 = 13,238

c) The selling price will have to increase by $5.37 ($65,200/12,152) to $155.37.