Question

Three years ago, Sandra Robinson started a business that creates and delivers holiday and birthday gift baskets to students at the local university, Sandra sells the baskets for $29 each and her variable costs are $19 per basket. She incurs $15,000 in fixed costs each year. (a) Your answer is correct. How many baskets will Sandra have to sell this year if she wants to earn $41,000 in operating income? (Round answer to o decimal places, e.g. 5,275.) 5600 baskets e Textbook and Media Attempts: 1 of 12 used

Answer 1

Solution :

1.	Raise Selling Price per Unit to	$ 30.20
2.	Reduce Variable costs per Unit to	$ 17.80
3.	Reduce Fixed Cost to	$ 9,000

Working :

(1) Sale Price Raise to :

Target Contribution to Earn Profit of $ 41,000 = Target Profit + Fixed Costs

= $ 41,000 + $ 15,000

= 56,000

Contribution per Unit required = 56,000 / 5,000

= 11.2

Sale Price = Variable Cost per Unit + Contribution per Unit

= $ 19 + $ 11.20

= $ 30.20 per Unit

(2) Variable Cost Reduce to :

Target Contribution to Earn Profit of $ 41,000 = Target Profit + Fixed Costs

= $ 41,000 + $ 15,000

= 56,000

Contribution per Unit required = 56,000 / 5,000

= 11.2

Variable Cost per Unit   = Sale Price per Unit - Contribution per Unit

= $ 29 - $ 11.20

= $ 17.80 per Unit  

(3) Fixed Cost Reduce to :

Fixed Cost Required to Earn $ 41,000 profit = Units * Contrubution per Unit - Target Profit

= 5,000 * ($ 29 - $ 19) - $ 41,000

= $ 50,000 - $ 41,000

   = $ 9,000

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