Question

Problem 3: Changing Prices Jensen Company has the following situation: Sales Price: $25 per unit Variable Cost Per Unit: $15 per unit Fixed Costs: $10,000 Units Sold: 2,500 Jensen is considering lowering the price to $22 per unit which she believes would increase units sold to 2,750. Required • Calculate the net income under the current situation and then again with the changes. Using the original data, what selling price would be needed to have a net income of $20,000? Should Jensen lower the price? Support your answer. Answers Questions Current Net Income Net Income With Changes Selling Price Needed for $20,000 Profit

Answer 1

Net Income under both the situations :- Particular Current Situation 62,500 With Changes 60,500 Sales Revenue Less: Variable cost Contribution margin 37,500 41,250 Less: Fixed cost 25,000 10,000 15,000 19,250 10,000 9,250 Net Income Selling price at $ 20,000 Net Income :- Particular Amount $ Net Income 20,000 10,000 Add: Fixed cost Required contribution Add: Variable cost @ 60% of sales 30,000 45,000 Requried sales revenus Selling price per unit at 2,500 units sales 75,000 30.00 Current Net Income is = 5 15,000/- Net incom with changes is = 5 9,250/. Selling price needed for $20,000 profit is = $ 30/.