A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totalled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same net income as was earned last year?

Question

Quizplus · Accepted Answer

To earn the same net income as last year, we need to find the total contribution margin required to cover the fixed expenses and then divide it by the contribution margin per unit to find the number of units to be sold. 
Last year's total contribution margin = $2 x 30,000 units = $60,000 
This year's fixed expenses = $26,000 
Therefore, this year's required total contribution margin = $60,000 + $26,000 = $86,000 
To find the required number of units: 
$86,000 ÷ $2 = 43,000 units 
However, we need only to cover the same net income as last year, so we need to subtract last year's fixed expense from this year's required total contribution margin: 
$86,000 - $20,000 = $66,000 
$66,000 ÷ $2 = 33,000 units 
Therefore, 33,000 units must be sold this year to earn the same net income as was earned last year.

A Total of 30,000 Units Were Sold Last Year