Question

Concord reported the following results from the sale of 5000 units in May: sales $440000, variable costs $320000, fixed costs $90000, and net income $30000. Assume that Concord increases the selling price by 5% on June 1. How many units will have to be sold in June to maintain the same level of net income?

a) 4225.

b) 4766.

c) 4750.

d) 5000.

Answer 1

Solution:

a) 4,225 units

Explanation:

Selling price per unit before increase = $440,000 / 5000 = $88per unit

Selling price after increase = 88 + (88 x 5%) = 88 + 4.4 = $92.4per unit

Variable cost per unit = 320,000 / 5000 = $64per unit

Contribution margin per unit = Selling price - Varible cost = 92.4 - 64 = $28.4per unit

Number of units sold (Units) = (Fixed cost + Desired profit ) / Contribution margin per unit

= (90,000 + 30,000) / 28.4

=120,000 / 28.4

=4,225units