Question

Minden Company manufactures a high-quality wooden birdhouse that sells for
$30 per unit. Variable costs are $6 per unit and fixed costs total $180,000.
During 2018, the company sold 50,000 birdhouses to customers. The president
of Minden Company believes the following changes should be made in 2019:

1. the selling price of the birdhouse should be increased by 20%

2. increase advertising by $30,000

Assume these changes are made. Calculate the number of units Minden Company
must sell in 2019 in order to earn a net income that is 80% greater than the
net income earned in 2018.

Answer 1

Sale price per unit	$30
Less :- variable cost per unit	$6
Contribution per unit	$24
Total Contribution
(50000 birdhouses x $24)	$1,200,000
Less :- Fixed Cost	$180,000
Profit for 2018	$1,020,000
Increase in profit 80%	$816,000
Desired profit for 2019	$1,836,000
($1,020,000+$816,000)
New Selling price for 2019	$36
($30+20% of $30)
Less:- variable cost per unit	$6
Contribution per unit	$30
Now,
Let suppose Desired quantity = Q
Desired Profit= Contribution per unit x Q - ( increased advertisement exp.+ Fixed Cost
$1,836,000 = 30 x Q - ( $30,000+$180,000)
30Q = $1,836,000+$210,000
Q = 68,200 birdhouses
Number of birdhouses should be sold by Minden Company in 2019 = 68,200 birdhouses