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 fewer units would have to be sold to earn $300,000? (Rounded)

Question

Quizplus · Accepted Answer

The contribution margin per unit is the selling price minus variable costs, which is:

$125 - $80 = $45

To earn $300,000, the total contribution margin needed is:

$300,000 + $45,000 (fixed costs) = $345,000

If the selling price is increased by 20% with a similar increase in variable costs, the new contribution margin per unit becomes:

$150 - $96 = $54

To find how many units need to be sold to earn $345,000 with the new contribution margin:

$345,000 ÷ $54 = 6,389 units

Finally, to find the difference in units sold:

Original units sold - New units sold = Difference

X - 1.2X = Difference

-0.2X = Difference

X = Difference ÷ -0.2

X = 6,389 ÷ 0.2

X = 31,945

31,945 is the original units sold. To find the number of fewer units that need to be sold:

31,945 - 6,389 = 25,556 units

Rounding to the nearest whole number, the answer is 1,278 units (Choice C).

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