X Company is considering a modification to one of its main products next year th

Question

X Company is considering a modification to one of its main products next year that would make it more attractive to customers. As a result, X Company could increase the selling price by $2.28 with no effect on unit sales; in other words, unit sales if the product is not modified will be the same as unit sells if the product is modified. However, if the product were modified, fixed costs would increase to $15,110. Financial information for the product for this year is as follows:

Selling price $9.86
Variable costs $4.32
Fixed costs $11,970

At what unit sales level would X Company be indifferent between modifying the product and not modifying it?

Explanation / Answer

Let the unit sales be x Profit should be same in both the cases x*($9.86-$4.32 )-11,970 = x*($2.28 +$9.86-$4.32) - $15,110 3140.0 =x*($2.28) x = 1377 units At 1377 units company would be indifferent between modifying the product and not modifying it

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