X Company is considering a modification to one of its main products that would m

Question

X Company is considering a modification to one of its main products that would make it more attractive to customers. A market research study costing $5,800 was conducted, and it indicated that the company could increase the price of the product by $2.08 with no decrease in unit sales; the current price is $9.04. Variable costs for the product are $3.50 and will not change as a result of the modification, but additional equipment would have to be rented, increasing fixed costs from $11,910 to $15,990. At what unit sales level would X Company be indifferent between modifying the product and not modifying it?

Explanation / Answer

Answer:

Contribution margin=Selling price-variable cost

=9.04-3.50=5.54

make an equation: 5.54x-11910

=11.12-3.50=7.62

make a second equation 7.62 x-15990 set them equal to each other and solve

5.54x-11910 =7.62 x-15990

2.08x=4080

X=1962 units

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