A total of 30,000 units were sold last year.The contribution margin per unit was $2,and total fixed expenses were $20,000 for the year.This year,fixed expenses are expected to increase to $26,000,but the contribution margin per unit will remain unchanged at $2.How many units must be sold this year to earn the same operating income as was earned last year?

Question

Quizplus · Accepted Answer

To earn the same operating income as last year, the total contribution margin must be equal to the sum of fixed expenses and last year's operating income. Last year's operating income was $20,000 ($30,000 units sold x $2 contribution margin per unit - $20,000 fixed expenses). So, this year's total contribution margin must be $46,000 ($26,000 increased fixed expenses + $20,000 previous operating income). To find out how many units must be sold, divide the total contribution margin by the contribution margin per unit: $46,000 / $2 = 23,000 units. Therefore, the total units that must be sold this year is 30,000 units (same as last year) plus 23,000 units, which equals 53,000 units. But since this question asks for how many units must be sold "to earn the same operating income as was earned last year," we don't need to add last year's units to this year's required units. Therefore, the answer is 33,000 units (23,000 units more than last year).

A Total of 30,000 Units Were Sold Last Year