Darwin Company sells glass vases at a wholesale price of $4 50 per unit. The variable cost to manufacture is $1.75 per unit. The monthly fixed costs are $8,500. Its current sales are 29,000 units per month. If the company wants to increase its operating income by 20%, how many additional units must it sell? (Round any intermediate calculations to two decimal places and your final answer to the nearest whole number.)

Question

A) 130,500 glass vases
B) 8,500 glass vases
C) 34,182 glass vases
D) 5,182 glass vases

Answer 1

D .D)
Net sales revenue ($4.50 x 29,000 ) $130,500
Less: Variable costs ($1.75 x 29,000 ) (50,750 )
Contribution margin 79,750
Less: Fixed costs (8,500 )
Operating income $71,250

Target profit = $71,250 x (1 + 20%) = $85,500

Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit = = 94,000 / $1.75 = 34,182 units

Sales prior to change 29,000 units
Additional sales needed (34,182 - 29,000 ) 5,182