Saulsberry Corporation manufactures numerous products, one of which is called Beta70. The company has provided the following data about this product:?Unit sales90,000?Selling price per unit$60.00?Variable cost per unit$36.00?Traceable fixed expense$2,030,000Required:a. What net operating income is the company earning now on its sales of Beta70?b. Management is considering increasing the price of Beta70 by 10%, from $60.00 to $66.00. The company's marketing managers estimate that this price hike would decrease unit sales by 15%, from 90,000 units to 76,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will Beta70 earn at a price of $66.00 if this sales forecast is correct?c. Assuming that the total traceable fixed expense does not
change, how many units of Beta70 would Saulsberry need to sell at a price of $66.00 to earn the same net operating income that it currently earns at a price of $60.00? (Round your answer up to the nearest whole number.)
What will be an ideal response?
a.
| ? | Unit sales (a) | 90,000 |
| ? | Selling price per unit | $60.00 |
| ? | Variable cost per unit | 36.00 |
| ? | Contribution margin per unit (b) | $24.00 |
| ? | Total contribution margin (a) x (b) | $2,160,000 |
| ? | Traceable fixed expense | 2,030,000 |
| ? | Net operating income | $130,000 |
b. The profit at the price of $66.00 per unit is computed as follows:
Profit = (P ? V) × Q ? Fixed expenses
Profit = ($66.00 per unit ? $36.00 per unit) × 76,500 units ? $2,030,000
Profit = ($30.00 per unit) × 76,500 units ? $2,030,000
Profit = $2,295,000 ? $2,030,000 = $265,000
c. Profit = (P ? V) × Q ? Fixed expenses
$130,000 = ($66.00 per unit ? $36.00 per unit) × Q ? $2,030,000
$2,160,000 = ($66.00 per unit ? $36.00 per unit) × Q
$2,160,000 = ($30.00 per unit) × Q
Q = $2,160,000 ÷ $30.00 per unit = 72,000 units (rounded up)
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