Maccarone Corporation manufactures numerous products, one of which is called Tau10. The company has provided the following data about this product:?Unit sales130,000?Selling price per unit$36.00?Variable cost per unit$21.00?Traceable fixed expense$1,690,000Required:a. What net operating income is the company earning now on its sales of Tau10?b. Management is considering decreasing the price of Tau10 by 5%, from $36.00 to $34.20. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 130,000 units to 143,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will Tau10 earn at a price of $34.20 if this sales forecast is correct?c. Assuming that the total traceable fixed expense does
not change, if Maccarone decreases the price of Tau10 to $34.20, what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $36.00? (Round your answer to the nearest one-tenth of a percent.)
What will be an ideal response?
a.
| ? | Unit sales (a) | 130,000 |
| ? | Selling price per unit | $36.00 |
| ? | Variable cost per unit | 21.00 |
| ? | Contribution margin per unit (b) | $15.00 |
| ? | Total contribution margin (a) x (b) | $1,950,000 |
| ? | Traceable fixed expense | 1,690,000 |
| ? | Net operating income | $260,000 |
b. The profit at the price of $34.20 per unit is computed as follows:
Profit = (P ? V) × Q ? Fixed expenses
Profit = ($34.20 per unit ? $21.00 per unit) × 143,000 units ? $1,690,000
Profit = ($13.20 per unit) × 143,000 units ? $1,690,000
Profit = $1,887,600 ? $1,690,000 = $197,600
c. Profit = (P ? V) × Q ? Fixed expenses
$260,000 = ($34.20 per unit ? $21.00 per unit) × Q ? $1,690,000
$1,950,000 = ($34.20 per unit ? $21.00 per unit) × Q
$1,950,000 = ($13.20 per unit) × Q
Q = $1,950,000 ÷ $13.20 per unit = 147,728 units (rounded up)
Percentage change in unit sales = (147,728 units ? 130,000 units) ÷ 130,000 units = 13.6% (rounded)
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