Question

Oriole Company had $197,000 of net income in 2019 when the selling price per unit was $152, the variable costs per unit were $90, and the fixed costs were $571,800. Management expects per unit data and total fixed costs to remain the same in 2020. The president of Oriole Company is under pressure from stockholders to increase net income by $99,200 in 2020.

Required:
a. Compute the number of units sold in 2019.
b. Compute the number of units that would have to be sold in 2020 to reach the stockholders’ desired profit .
c. Assume that Oriole Company sells the same number of units in 2020 as it did in 2019. What would the selling price have to be in order to reach the stockholders’ desired profit level?

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Net income= $197,000

Selling price per unit= $152

Unitary variable cost= $90

Fixed costs= $571,800

Desired profit= 99,200 + 197,000= $296,200

First, we need to calculate the number of units sold:

Contribution margin per unit= 152 - 90= $62

Total contribution margin= net income + fixed costs

Total contribution margin= 197,000 + 571,800= $768,800

Units sold= total contribution margin / unitary contribution margin

Units sold= 768,800/62= 12,400 units

Now, to determine the number of units to be sold, we need to use the following formula:

Break-even point in units= (fixed costs + desired profir) / contribution margin per unit

Break-even point in units= (571,800 + 296,200) / 62

Break-even point in units= 14,000 units

Finally, we need to determine the selling price for 12,400 units and the desired profit of $296,200.

12,400= 868,000 / (selling price - 90)

-1,116,000 + 12,400selling price= 868,000

12,400 selling price = 1,984,000

selling price= $160