In 2019, Raleigh sold 1,000 units at $500 each, and earned net income of $40,000. Variable expenses were $300 per unit, and fixed expenses were $160,000. The same selling price is expected for 2020. Raleigh's variable cost per unit will rise by 10% in 2020 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000. How many units must Raleigh sell in 2020 to maintain the same income level as 2019?
A) 882
B) 1,000
C) 1,056
D) 1,118

Question

Quizplus · Accepted Answer

In 2020, the variable cost per unit will be $330 ($300 + 10% of $300). Fixed costs will be $150,000 ($160,000 - $10,000). To maintain the same income of $40,000, Raleigh needs to cover the new total costs. The contribution margin per unit is $170 ($500 - $330). The required sales in units = (Fixed Costs + Desired Income) / Contribution Margin per Unit = ($150,000 + $40,000) / $170 = 1,118 units.

In 2019, Raleigh Sold 1,000 Units at $500 Each, and Earned