Loren, Inc., sold 30,000 units of its product last year with the following results:
The company expects variable costs to increase by $4.00 per unit this year.
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution margin ratio for this year.
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year, determine the unit sales price the company must charge to cover the expected increase in variable costs.

Question

Loren, Inc., sold 30,000 units of its product last year with the following results:
  The company expects variable costs to increase by $4.00 per unit this year. 
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution margin ratio for this year.
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year, determine the unit sales price the company must charge to cover the expected increase in variable costs.

Quizplus · Accepted Answer

The Answer of Loren, Inc., sold 30,000 units of its product last year with the following results:
  The company expects variable costs to increase by $4.00 per unit this year. 
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution margin ratio for this year.
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year, determine the unit sales price the company must charge to cover the expected increase in variable costs.