Reference: 08-05
Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.
-If the selling price is reduced by 5%, variable expenses reduced by $1.00, and fixe? expenses increased to a total of $38,400, how many units would need to be sold to earn a net income of $21,000?

Question

Quizplus · Accepted Answer

To solve this, first, calculate the new selling price and variable cost per unit after the adjustments. The original selling price is $60, and reducing it by 5% gives a new selling price of $57 ($60 - $60*5%). The original variable cost per unit can be found from the contribution margin ratio (40%), which implies that 60% of the selling price is variable cost. So, the original variable cost is $36 ($60*60%). Reducing this by $1 gives a new variable cost of $35 per unit. The contribution margin per unit is then $22 ($57 - $35). To find the break-even point, add the desired net income to the new fixed expenses and divide by the contribution margin per unit: ($38,400 + $21,000) / $22 = 2,700 units.

Reference: 08-05 Dorian Company Produces and Sells a Single Product. the Product