Question

Problem 1 (10 points) Slow Movers developed the following unit amounts for one of its divisions that manufacturers one product: Per Unit Sales price $90 Variable cost 54 Contribution margin $36 Total fixed costs $432,000 Instructions Answer the following independent questions and show computations to support your answers. a. How many units must be sold to break-even? (3 points) b. What are the total sales in dollars that must be generated for the company to earn a profit of $50,400? (3 points) c. If the company is presently selling 14,000 units, but plans to spend an additional $135,000 on an advertising program, how many additional units must the company sell to earn the same net income it is now making? (4 points)

Answer 1

a.	Units for Break-even =	Total fixed cost/contribution per unit
		432,000/36
	Units for Break-even =	12,000
b.	Target profit	$50,400
	Fixed cost	$432,000
	Dollar sales to earn a target profit=	(Target profit+Fixed Cost)/G.P. ratio
	Dollar sales to earn a target profit=	(50400+432000)/40%
	Dollar sales to earn a target profit=	$1,206,000
c.	Net income at 14,000 units
	Contribution margin	$504,000
	Less: Total fixed costs	$432,000
	Net income	$72,000
	New fixed cost after advertising expense	$567,000	(432,000+135,000)
	Net income required	$72,000
	Total contribution required	$639,000
	contribution per unit	$36
	Units required to earn same profit	17,750	(639,0000/36)

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