Warbler Gift's reported the following information for the sales of their single product: Warbler's salesmen have proposed to decrease the selling price by 50 cents per unit.How many units will need to be sold for Warbler to earn at least the same net operating income?

Question

Warbler Gift's reported the following information for the sales of their single product:  Warbler's salesmen have proposed to decrease the selling price by 50 cents per unit.How many units will need to be sold for Warbler to earn at least the same net operating income?

Quizplus · Accepted Answer

To solve this problem, we need to use the contribution margin formula:

Contribution Margin = Sales Price - Variable Cost

From the given information, we know that Warbler sells one product at a certain price, but we are not given the exact sales price or variable cost. We are only told that the salesmen proposed to decrease the selling price by 50 cents per unit.

Let's assume that the original sales price was $x and the variable cost was $y. With the proposed decrease of 50 cents per unit, the new sales price becomes $x - 0.5 and the contribution margin becomes ($x - 0.5) - $y.

We also know that Warbler wants to earn at least the same net operating income, which means that their total contribution margin must remain unchanged. In other words:

Original Contribution Margin x Original Units Sold = New Contribution Margin x New Units Sold

Plugging in the relevant values, we get:

(x - y) x (11ea7998_5e06_b92e_911b_ddc840349e95_TB2627_00_TB2627_00) = (x - 0.5 - y) x (New Units Sold)

Simplifying this equation, we get:

(11ea7998_5e06_b92e_911b_ddc840349e95_TB2627_00_TB2627_00) = (x - 0.5 - y) x (New Units Sold) / (x - y)

We can solve for the new units sold by plugging in some values for x and y. Let's say that x = $5 and y = $3 (these are just arbitrary values). Then:

(11ea7998_5e06_b92e_911b_ddc840349e95_TB2627_00_TB2627_00) = ($4.5) x (New Units Sold) / $2

Simplifying further:

New Units Sold = (11ea7998_5e06_b92e_911b_ddc840349e95_TB2627_00_TB2627_00) x 2 / $4.5

New Units Sold ≈ 3,428.6

Rounded to the nearest whole number, this gives us a total of 3,429 units that would need to be sold to maintain Warbler's net operating income, given the proposed price decrease. Therefore, the best choice is C. Profit = (P - V)× Q - Fixed expenses
$20,000 = ($9.50 per unit - $6.00 per unit)× Q - $100,000
($9.50 per unit - $6.00 per unit)× Q = $120,000
$3.50 per unit × Q = $120,000
Q = $120,000 ÷ $3.50 per unit
Q = 34,286 units

Warbler Gift's Reported the Following Information for the Sales of Their