Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

-If the selling price is reduced by 5%,variable expenses reduced by $1.00,and fixed expenses increased to a total of $38,400,how many units would need to be sold to earn an operating income of $21,000?

Question

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

-If the selling price is reduced by 5%,variable expenses reduced by $1.00,and fixed expenses increased to a total of $38,400,how many units would need to be sold to earn an operating income of $21,000?

Quizplus · Accepted Answer

First, we need to calculate the new contribution margin per unit after the changes. Let's assume the original selling price was $10, and the original variable expenses were $6 per unit. 
New selling price = 10 - 0.05(10) = $9.50 
New variable expenses = 6 - 1 = $5 
New contribution margin per unit = 9.50 - 5 = $4.50

Next, we need to calculate the breakeven point with the new information. Let's assume the original fixed expenses were $36,000. 
Breakeven point = Fixed expenses / Contribution margin per unit 
Breakeven point = 38,400 / 4.50 = 8,533.33 units

Finally, we can calculate the number of units needed to earn an operating income of $21,000. 
Operating income = (Unit contribution margin x Number of units sold) - Fixed expenses 
21,000 = (4.50 x N) - 38,400 
59,400 = 4.50N 
N = 13,200 
Therefore, the number of units needed to earn an operating income of $21,000 is 2,700 units (rounded up to the nearest unit).

Dorian Company Produces and Sells a Single Product