Question

produces sport socks. The company has fixed expenses of

$ 110 comma 000$110,000

and variable expenses of

$ 1.10$1.10

per package. Each package sells for

$ 2.20$2.20.

The number of packages

Ten ToesTen Toes

needed to sell to earn

aa

$ 27 comma 000$27,000

operating income was

124 comma 546124,546

packages left parenthesis rounded right parenthesis .packages (rounded).

If

Ten ToesTen Toes

can decrease its variable costs to

$ 0.90$0.90

per package by increasing its fixed costs to

$ 125 comma 000$125,000​,

how many packages will it have to sell to generate

$ 27 comma 000$27,000

of operating​ income? Is this more or less than​ before? Why?

Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

(

Fixed expenses

+

Operating income

) /

Contribution margin per unit

=

Sales in units

​(Round your answer up to the nearest whole​ unit.)

Ten Toes will have to sell

packages to generate $27,000 of operating income.

Answer 1

New contribution margin=Sales price - Variable costs = 2.20 - 0.90 = 1.30 Sales needed=(Fixed costs +Operating income)/CM per unit =(125,000+27,000)/1.30 =116923 Ten toes will have to sell 116923 packages to generate $27000 of operating income.