Calculation of Existing profit
Sales 100000*80 = 8000000
Variable Cost 100000*40 = (4000000)
Fixed Cost (1600000)
Existing Profit 2400000
Breakup of Variable cost
Existing Impact of Increase
Material 40*25% = 10 11.15
Labour 40*45% = 18 21.6
Overhead 40-10-18 = 12 15
Variable Cost 40 48.1
(1) Calculation Of volume of sales and dollar sales to maintain existing price after price increase
Sales price increase by 10%
Contribution
Sales price = 88
Variable Cost = 48.1
Contribution = 39.9
Fixed cost increase by 6% = 1696000
Desired Sales = Fixed cost + Target profit
Contribution per unit
= 1696000+2400000
39.9
Sales in unit = 102656.64
Sales in Dollar = 102656.64*88 = $ 9033784.32
(2) Calculation of volume of sales and Dollar sales to maintain 7% increase in profit
Target Profit = 2400000*.07+2400000 = $ 2568000
Desired Sales = Fixed cost + Target profit
Contribution per unit
= 1696000+2568000
$39.9
Sales in units = 106867.17
Sales in Dollars = 106867.17*88 = 9404310.96
(3) Calculation of price change if the volume of sales remain 100000units and profit increase by 7%
Variable cost per unit =$ 48.1
Fixed cost per unit = 1696000/100000 = $16.96
Target profit per unit = 2568000/100000 =$ 25.68
New Sales price = $90.74
Increase in sales price = 90.74-80 = $10.74 (i.e 13.425% increase in sales price)
Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco,...
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