Pittsboro Corporation produces and sells a single product. Data for that product are: Sales price per unit $590 Variable cost per unit $190 Fixed expenses for the month $1,200,000 Currently selling 4000 unitsManagement is discussing increasing the price to $625 to cover an increase in fixed expenses of $89,000. Management believes they might lose 2% of sales per month. How many units per month would the company have to sell to maintain its current level of operating income?

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TomShelby TomShelby · Answer 1 · 2019-10-27T05:23:25+01:00

Answer:

The company will need to sale 3,883 units to maintain its current operating income of 400,000

Explanation:

We will calculate the point at which the company mantains his current income in units at the new scenario:

[tex]\frac{Fixed\:Cost + target \: income}{Contribution \:Margin} = Break\: Even\: Point_{units}[/tex]

Where:

[tex]Sales \: Revenue - Variable \: Cost = Contribution \: Margin[/tex]

625 - 190 = 435 each units contributes this amount to afford the fixed cost and make a gain.

Current income: contribution x units sold - fixed cost

(590-190) x 4,000 - 1,200,000 = 400,000

(1,200,000 + 89,000 + 400,000) / 435 = 3,882.75862 = 3,883 units

The company will need to sale 3,883 units to maintain its current operating income of 400,000