Question

Question 3 4.5 pts Pure Water Products produces a water filter that attaches to the faucet an d cleans all water that passes through the faucet. During 2019, 38,000 units of the water filter were sold to customers. Information related to the wat er filter product appears below: Contribution margin $28.30 per unit Variable costs $43.20 per unit Fixed costs (in total) $833,220 For 2020, Pure Water is considering buying new production equipment. The new equipment will increase fixed costs by $33,085 per year and will decrease the variable cost of the water filter by $2.75 per unit. Assume the new production equipment is purchased . Calculate the number of units of the water filter that Pure Water Products needs to sell in 2020 in order to earn the same net income that was earned in 2019

Answer 1

Net Income Earned in 2019

Contribution margin per unit = $ 28.30

No. of units sold in 2019 = 38,000

Total Contribution Margin = $1,075,400

Less: Fixed Cost = $ 833,220

Net Income for 2019 = $ 242,180

Sales Price per unit = Contribution per unit + Variable Cost per unit

Sales price per unit = $28.30 + $ 43.20 = $71.50

Number of Units of Water Filter to be sold in 2020 to earn the same net income earned in 2019

Net Income for 2019   = $242,180

(+) Fixed Overheads = $866,305 [$833,220+$33,085]

Expected Total Contribution margin for 2020 = $1,108,485

Expected Contribution margin per unit = Sales Price per unit - Revised Variable Cost per unit

= $71.50 per unit - $40.45 per unit [$43.20-$2.75]

Expected Contribution margin per unit= $31.05 per

Number of units to be sold in 2020 = Expected Total Contribution Margin for 2020/Expected Contribution Margin per unit

= $1,108,485/$31.05

Number of units to be sold in 2020 = 35,700 units