Yashinski Corporation manufactures numerous products, one of which is called Alpha46. The company has provided the following data about this product:?Unit sales (a)110,000?Selling price per unit$45.00?Variable cost per unit33.00?Contribution margin per unit (b)$12.00?Total contribution margin (a) x (b)$1,320,000?Traceable fixed expense1,240,000?Net operating income$80,000Required:a. Management is considering increasing the price of Alpha46 by 15%, from $45.00 to $51.75. The company's marketing managers estimate that this price hike would decrease unit sales by 25%, from 110,000 units to 82,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will Alpha46 earn at a price of $51.75 if this sales forecast is correct?b. Assuming

Question

that the total traceable fixed expense does not change, how many units of Alpha46 would Yashinski need to sell at a price of $51.75 to earn the same net operating income that it currently earns at a price of $45.00? (Round your answer up to the nearest whole number.)

What will be an ideal response?

Answer 1

a. The profit at the price of $51.75 per unit is computed as follows:
Profit = (P ? V) × Q ? Fixed expenses
Profit = ($51.75 per unit ? $33.00 per unit) × 82,500 units ? $1,240,000
Profit = ($18.75 per unit) × 82,500 units ? $1,240,000
Profit = $1,546,875 ? $1,240,000 = $306,875
b. Profit = (P ? V) × Q ? Fixed expenses
$80,000 = ($51.75 per unit ? $33.00 per unit) × Q ? $1,240,000
$1,320,000 = ($51.75 per unit ? $33.00 per unit) × Q
$1,320,000 = ($18.75 per unit) × Q
Q = $1,320,000 ÷ $18.75 per unit = 70,400 units (rounded up)