Question

Чuestion/ Question 26 of 40 -/5.63 View Policies Current Attempt in Progress Carla Vista Corporation reported the following results from the sale of 7080 units in March: sales $354000, variable costs $212400, fixed costs $106200, and operating in come $35400. Assume that Carla Vista increases the selling price by 8% on April 1. How many units will have to be sold in April to maintain the same level of operating income? 0 5900. 0 7080. O 6372 0 3540 Save for Later Attempts: 0 of 1 used Submit Answer

Answer 1

Details given for March :

Sales units =7080

Sales =$354000

Variable Cost=$212400

Fixed Cost =$106200

Operating Income =$35400

Required :

No. of units to be sold in April

Given, Increase in selling price =8% , Maintaining same level of operating Income

Equations :

Operating Income = Sales - Variable Cost - Fixed Cost

Selling Price per unit = Sales / No. of units sold

% of operating income to sales = operating income/ sales *100

Contribution margin = Selling Price per unit - Variable Cost per unit

Operating income to contribution %= operating income / contribution *100

Computation :

Selling Price per unit in April = Selling Price per unit in March(see equation above) + 8% increase

=($354000/7080)+8% increase

=$50+8%=$54

Operating Income to sales % in April = $35400/$354000*100

=10%

Contribution margin of March = ($354000/7080-$212400/7080)

=50-30=20

Operating income to Contribution % = $35400/($354000-$212400)=$35400/$141600

=25% (to be maintained in April)

Operating income= Contribution - Fixed Cost

Let x be no. of units to be sold in April

Operating Income = (54-30)*x-$106200

54 being new selling price and 30 being Variable cost per unit

So, operating income =24x-$106200

Operating income to be maintained at 25% of contribution

So, 24x*25%=24x-$106200

Therefore, 18x =$106200

So, Units to be sold to maintain same level of operating income is $106200/18= 5900 units

So, option 1 is correct