Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.
-If the selling price is reduced by 5%, variable expenses reduced by $1.00, and fixed expenses increased to a total of $38,400, how many units would need to be sold to earn a net operating income of $21,000?

Question

Quizplus · Accepted Answer

The contribution margin per unit is $60 x 40% = $24. The new selling price is $60 x 95% = $57. The new variable expenses per unit are $24 - $1 = $23. The new contribution margin per unit is $57 - $23 = $34. The new break-even point is $38,400 / $34 = 1,129 units. To earn a net operating income of $21,000, the company must sell 1,129 + ($21,000 / $34) = 2,700 units.

Dorian Company Produces and Sells a Single Product