Question

Question Wildhorse Company had $273,300 of net income in 2019 when the selling price per unit was $155, the variable costs per unit were $90, and the fixed costs were $571,700. Management expects per unit data and total fixed costs to remain the same in 2020. The president of Wildhorse Company is under pressure from stockholders to increase net income by $39,000 in 2020, Compute the number of units sold in 2019. Compute the number of units that would have to be sold in 2020 to reach the stockholders' desired profit level. Assume that Crane Company sells the same number of units in 2020 as it did in 2019. What would the selling price have to be in order to reach the stockholders' desired profit level? New selling price?

Answer 1

Contribution Margin per unit = Selling Price - Variable expenses per unit
= $155 - $90 = $65 per unit

Units sold in 2019 = (Fixed Cost + Net income) / Contribution Margin per unit
= ($571700 + $273300) / $65 = 13000 units

Units to be sold in 2020 = (Fixed Cost + Desired profit) / Contribution Margin per unit
= ($571700 + $312300) / $65 = 13600 units
Desired Profit = $273300 + $39000 = $312300

Price
Sales revenue = Desired Profit + Fixed Cost + Variable cost
= $312300 + 571700 + (13000 x $90) = $2054000

Selling price per unit = $2054000 / 13000 = $158 per unit