Question

Three years ago, Marissa Moore started a business that creates and delivers holiday and birthday gift baskets to students at the local university. Marissa sells the baskets for $26 each, and her variable costs are $16 per basket. She incurs $10,600 in fixed costs each year. How many baskets will Marissa have to sell this year if she wants to earn $30,500 in operating income?
Last year, Marissa sold 4,190 baskets, and she believes that demand this year will be stable at 4.190 baskets. The following are the actions Mariss could take if she wants to earn $30.500 in operating income by selling only 4.190 baskets. Consider each action independently.
1. Ralse selling price per unit to______.
2. Reduce variable costs per unit to $______.
3. Reduce fixed costs to______.

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Selling price= $26

Unitary variable cost= $16

Fixed costs= $10,000

Desired income= $30,500

1) To calculate the number of units to reach the objective, 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= (10,000 + 30,500) / 10

Break-even point in units= 4,050 units

2) We know that selling 4,050 units is enough to reach a profit of $30,500. I will determine the level of the selling price, unitary variable cost and fixed costs (separately) that the company can resist to still earn $30,500

Units sold= 4,190

We will use the same formula:

a) 4,190= 40,500 / (x - 16)

4,190x - 67,040= 40,500

selling price= $25.67

b) Unitary variable cost:

4,190= 40,500/ (26 - x)

108,940 - 4,190x= 40,500

unitary variable cost= $16.33

c) fixed costs:

4,190= (x + 30,500)/10

41,900 - 30,500= x

11,400 = fixed costs