Smith Company reported the following results from sales of 5,000 units of Product A for June: $\begin{array}{ll}
\text { Sales } & \$ 200,000 \
\text { Variable costs } & ({120,000}) \
\text { Fixed costs } & (\underline{60,000})\
\text { Operating income } & \underline{\$ 20,000}
\end{array}$ Assume that Smith increases the selling price of Product A by 10 percent in July.How many units of Product A would have to be sold in July to generate an operating income of $20,000?
A)4,000
B)4,300
C)4,545
D)5,000

Question

Quizplus · Accepted Answer

To find the number of units needed to achieve the same operating income with a 10% increase in selling price, calculate the new selling price per unit: $200,000 / 5,000 = $40 per unit. A 10% increase makes it $44 per unit. The contribution margin per unit is now $44 - ($120,000 / 5,000) = $20. To cover fixed costs of $60,000 and achieve $20,000 operating income, the required units are ($60,000 + $20,000) / $20 = 4,000 units.

Smith Company Reported the Following Results from Sales of 5,000