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. As a result, X Company could increase the price with no decrease in unit sales. Currently, financial information for this product is as follows:

Selling price = $10.80

Variable costs = $4.20

Fixed costs = $11,540

The modification would not result in additional variable costs, but fixed costs would increase to $15,130. Assuming that X Company could increase the selling price by $2.84, at what unit sales level would it be indifferent between modifying the product and not modifying it?

Explanation / Answer

Calculate what unit sales level would it be indifferent between modifying the product and not modifying it

Contribution margin-Fixed cost = Contribution margin-fixed cost

6.60X - 11540 = 9.44X-15130

6.60X-9.44X = -3590

-2.84X = -3590

X(Indifferent point unit) = 3590/2.84 = 1264 Units

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