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Rooney Company produces a product that has a variable cost of $21 per unit and a...

Rooney Company produces a product that has a variable cost of $21 per unit and a sales price of $61 per unit. The company’s annual fixed costs total $710,000. It had net income of $270,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $53 per unit.


Required

  1. If Rooney desires to maintain net income of $270,000, how many additional units must it sell to justify the price decline?

  2. Assume that in addition to lowering its selling price to $53, Rooney also desires to increase its net income by $76,000. Determine the number of units the company must sell to earn the desired income.

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Answer #1

Selling Price = 53

Variable cost = 21

Contibution Margin Per Unit = 53-21 =32 Per Unit

Units To Get the desired Net income = ( Fixed cost + Desired net income ) / CM Per Unit

1) Units to Earn $270,000 Net income = ( 710,000+270,000) / 32 = 30,625 (Units) Answer

2) Addition net income = 76,000 , Units = 30,625 +(76,000/32)= 33,000 (Units) Answer

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