A product sells for $125, variable costs are $80, and fixed costs are $45,000. If the selling price can be increased by 20% with a similar increase in variable costs, how many less units would have to be sold to earn $300,000?

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Quizplus · Accepted Answer

The original contribution margin per unit is $125 - $80 = $45. With a 20% increase, the new selling price is $150 and the new variable cost is $96, making the new contribution margin $54. To earn $300,000, the original units needed are ($300,000 + $45,000) / $45 = 7,667 units. With the new contribution margin, the units needed are ($300,000 + $45,000) / $54 = 6,389 units. The difference is 7,667 - 6,389 = 1,278 units.

A Product Sells for $125, Variable Costs Are $80, and Fixed