Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as follows:
$$\begin{array} { | l | r | }
\hline \text { Pice per unit } & \$ 25.00 \
\hline \text { Variable cost per unit } & \$ 20.00 \
\hline \text { Fixed cost per month } & \$ 8,000 \
\hline \text { Current sales volume (units) } & 3,000 \
\hline
\end{array}$$
-
If Bell wishes to double their current operating income, what volume of sales is needed?

Question

Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as follows:
$$\begin{array} { | l | r | } 
\hline \text { Pice per unit } & \$ 25.00 \
\hline \text { Variable cost per unit } & \$ 20.00 \
\hline \text { Fixed cost per month } & \$ 8,000 \
\hline \text { Current sales volume (units) } & 3,000 \
\hline
\end{array}$$
-
If Bell wishes to double their current operating income, what volume of sales is needed?

Quizplus · Accepted Answer

The correct answer is B) 4,400.To double the operating income, the contribution margin must be doubled. The contribution margin is the difference between the selling price and the variable cost per unit. In this case, the contribution margin is $25.00 - $20.00 = $5.00 per unit.To double the contribution margin, the sales volume must be doubled. The current sales volume is 3,000 units, so the new sales volume must be 6,000 units.However, the fixed costs will also increase as the sales volume increases. The fixed costs are $8,000 per month, so the new fixed costs will be $16,000 per month.Therefore, the new operating income will be:(6,000 units * $5.00 per unit) - $16,000 = $14,000This is double the current operating income of $7,000.

Bell Products Manufactures Packs of Pesticides Which Are Sold to Farmers