How do I began to solve this if it doesn\'t give tell me what the original units
ID: 2344762 • Letter: H
Question
How do I began to solve this if it doesn't give tell me what the original units sold were or cost per unit?Sales $594,000
Variable expenses 207,900
Contribution margin 386,100
Fixed expenses 160,000
Net operating income $226,100
Assume that the company sold 36,000 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $71,000 increase in advertising, would cause annual sales in units to increase by one-third.
(a)
Prepare two contribution format income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. Show both total and per unit data on your statements.round to two decimals
Last Year Proposed
36,000 units 48,000 units
AMT Per Unit AMT Per Unit
Sales $ $ $ $
Variable expenses
Contribution margin …….
Fixed expenses……………
Net operating income……..
Explanation / Answer
Last year
Proposed
36,000
48,000
Total
Per unit
Total
Per unit
Sales
594,000
16.50
704,880
14.69
Variable expenses
207,900
5.78
277,200
5.78
Contribution Marg
386,100
10.73
427,680
8.91
Fixed expenses
160,000
4.44
231,000
4.81
Net income
226,100
6.28
196,680
4.10
First take the total sales of 594,000 and decrease by 11% and then increase by a third. (594,000*.89*4/3) = 704,880. This is the Sales for the proposed year.
Then increase your variable expenses by a third (207,900*4/3) = 277,200 – this is the variable expenses for the propose year. Then for both years just subtract (sales – variable expsenses) to find the contribution margin.
Fixed expenses will need to increase by 71,000 for the proposed year for the advertising. Net income is just subtracting in each column (contribution margin – fixed expenses).
That was for the total. Then for the unit column, I just divided each one by the number of units, 36,000 for the last year, 48,000 for the proposed year.
Last year
Proposed
36,000
48,000
Total
Per unit
Total
Per unit
Sales
594,000
16.50
704,880
14.69
Variable expenses
207,900
5.78
277,200
5.78
Contribution Marg
386,100
10.73
427,680
8.91
Fixed expenses
160,000
4.44
231,000
4.81
Net income
226,100
6.28
196,680
4.10
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