Naylor Company had $155,400 of net income in 2013 when the selling price per uni

Question

Naylor Company had $155,400 of net income in 2013 when the selling price per unit was $160, the variable costs per unit were $100, and the fixed costs were $574,200. Management expects per unit data and total fixed costs to remain the same in 2014. The president of Naylor Company is under pressure from stockholders to increase net income by $64,200 in 2014.

Compute the number of units sold in 2013.

Answer: 12160

Compute the number of units that would have to be sold in 2014 to reach the stockholders’ desired profit level.

Answer: 13230

**Assume that Naylor Company sells the same number of units in 2014 as it did in 2013. What would the selling price have to be in order to reach the stockholders’ desired profit level? (Round answer to 2 decimal places, e.g. 12.25.)

New Selling Price:

Explanation / Answer

Compute number of units sold in 2013

The calculation of units sold (X) is calculated as:

$155,400 = $160(X) - $100(X) - $574,200, this reduces to

$729,600 = $60(X), which solves as:

12,160 = X

For additional $ 64200 profit

The calculation of units sold (X) is calculated as:

$219,600 = $160(X) - $100(X) - $574,200, this reduces to

$793,800 = $60(X), which solves as:

13,230 = X

Company sells the same number of units in 2014 as it did in 2013. What would the selling price have to be in order to reach the stockholders' desired profit level?

They need to increase the average sales price by ($64,200 / 12,160) = $5.28 per unit.

So the new average sales price would be ($160.00 + $5.28) = $165.28

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