Herrell Corporation manufactures numerous products, one of which is called Delta-11. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Herrell increases the price of Delta-11 to $30.45, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $29.00? (Your answer should be rounded to the nearest 0.1%.)
A) (10.0)%
B) (8.2)%
C) (12.7)%
D) (19.8)%

Question

Herrell Corporation manufactures numerous products, one of which is called Delta-11. The company has provided the following data about this product:  Assume that the total traceable fixed expense does not change. If Herrell increases the price of Delta-11 to $30.45, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $29.00? (Your answer should be rounded to the nearest 0.1%.)
A) (10.0)% 
B) (8.2)% 
C) (12.7)% 
D) (19.8)%

Quizplus · Accepted Answer

To solve this problem, we need to use the formula for finding the sales volume required to earn a specific net operating income:

Sales Volume = (Fixed Expenses + Target Net Operating Income) / Contribution Margin per Unit

We know from the information given that the current price of Delta-11 is $29.00, and that changing the price to $30.45 will not affect total traceable fixed expenses. This means that the contribution margin per unit will increase from its current value of $9.00 to $10.45 ($30.45 - $20 - $1).

Let x be the percentage change in unit sales that would provide the same net operating income as is currently being earned at a price of $29.00. We can set up the following equation:

($29.00 x) (1 + x/100) ($9.00) = ($30.45) (x/100) ($10.45)

Solving for x gives us x = 12.7%, rounded to the nearest 0.1%. Therefore, the answer is C, a 12.7% decrease in unit sales is required to maintain the same net operating income if the company increases the price of Delta-11 from $29.00 to $30.45.

Herrell Corporation Manufactures Numerous Products, One of Which Is Called