Question

The Vice President for Sales and Marketing at Waterways Corporation is planning for production needs to meet sales demand in the coming year. He is also trying to determine how the company’s profits might be increased in the coming year. This problem asks you to use cost-volume-profit concepts to help Waterways understand contribution margins of some of its products and decide whether to mass-produce any of them.

Waterways markets a simple water control and timer that it mass-produces. Last year, the company sold 751,000 units at an average selling price of $4.90 per unit. The variable costs were$2,575,930, and the fixed costs were $772,779.

If management wanted to increase its income from this product by 10%, how many additional units would have to be sold to reach this income level? Waterways would have to sell an additional 364310.11

Answer 1

	Per unit	Total
Sales revenue	4.90	3679900
Less: Variable expenses	3.43	2575930
Contribution margin	1.47	1103970
Less: Fixed expenses		772779
Net income		331191
Net income increase required	33119.1	=331191*10%
Divide by Contribution margin per unit	1.47
Waterways would have to sell an additional	22530	units