Question

The following information is available for the 22,200 units of X Company's only product sold in 2019: Selling price Variable costs per unit Total fixed costs $63.10 $19.70 $355,200 Management believes it can increase the selling price in 2020 with no change in unit sales. Variable costs per unit and fixed costs would remain the same. What would the selling price have to be in 2020 in order for X Company's 2020 profit to be $760,350?

Answer 1

Answer:

The management is intended to increase the sale price per unit without increase in units and requires an profit of $760,350

Total Sales made = 22,200 * $63.1 = $1,400,820

Contribution margin ratio = [(Sale price per unit - Variable cost per Unit) / Sale price per unit] * 100

                                     = [($63.1 - $19.7) / 63.1 ] * 100

                                     = 68.779% or 68.78%

Total fixed cost = $355,200

Required profit = $760,350

= [Fixed Cost + Required profit] / Contribution margin ratio

= [$355,200 + $760,350] / 68.78%

= $1,115,550 / 68.78%

= $1,621,910

Total sales to be made to earn profit of $760,350 = $1,621,910

Since, the management is not making any changes in units

Selling Price in 2020 = Total Sales to be made / Total Units to be sold

= $1,621,910 / 22,200

                              = $73.06 per unit

Note: Values to compute Contribution margin ratio and Selling price per unit are rounded off to nearest two decimals.