In 2012, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000.Variable expenses were $300 per unit, and fixed expenses were $150,000.The same selling price is expected for 2013.Raleigh's variable cost per unit will rise by 10% in 2013 due to increasing material costs, so they are tentatively planning to cut fixed costs by $15,000.How many units must Raleigh sell in 2013 to maintain the same income level as 2012?

Question

Quizplus · Accepted Answer

To maintain the same income level, Raleigh must cover the increased variable costs and reduced fixed costs. The new variable cost per unit is $330 ($300 + 10% of $300). The contribution margin per unit is $170 ($500 - $330). The new fixed costs are $135,000 ($150,000 - $15,000). To achieve the same net income of $50,000, Raleigh needs to cover the fixed costs and desired income: ($135,000 + $50,000) / $170 = 1,088 units.

In 2012, Raleigh Sold 1,000 Units at $500 Each, and Earned