Perry Corporation produces and sells a single product. Data for that product are: Upper management is considering using a biodegradable packaging which costs $5 more per unit but it produces less waste in the long run. Management plans to increase advertising by $10,000 per month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 2,000 units per month.
How many units would the company have to sell to maintain current operating income if these changes are implemented? Round up to the nearest whole unit.

Question

Perry Corporation produces and sells a single product. Data for that product are:  Upper management is considering using a biodegradable packaging which costs $5 more per unit but it produces less waste in the long run. Management plans to increase advertising by $10,000 per month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 2,000 units per month.
How many units would the company have to sell to maintain current operating income if these changes are implemented? Round up to the nearest whole unit.

Quizplus · Accepted Answer

To maintain current operating income, the company must generate enough additional revenue to cover the additional costs incurred from the biodegradable packaging and increased advertising.

The additional cost for using biodegradable packaging is $5 per unit, and the company plans to increase advertising by $10,000 per month.

To cover these costs, the company needs to sell an additional (10,000/5) = 2,000 units per month, which matches the increase in sales they expect from environmentally friendly consumers.

Therefore, to maintain current operating income, the company needs to sell the same number of units as they currently do, plus the additional 2,000 units.

11,000 + 2,000 = 13,000 units per month.

Rounding up to the nearest whole unit gives us the answer of 13,077 units, which is choice B.

Perry Corporation Produces and Sells a Single Product