In 2016, Raleigh sold 1,000 units at $500 each, and earned net income of $40,000.Variable expenses were $300 per unit, and fixed expenses were $160,000.The same selling price is expected for 2017.Raleigh's variable cost per unit will rise by 10% in 2017 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000.How many units must Raleigh sell in 2017 to maintain the same income level as 2016?
A)882
B)1,000
C)1,056
D)1,118

Question

Quizplus · Accepted Answer

To maintain the same income level, Raleigh must cover the increased variable costs and reduced fixed costs. The new variable cost per unit is $330 ($300 + 10%). The contribution margin per unit is $170 ($500 - $330). The new fixed costs are $150,000 ($160,000 - $10,000). To achieve a net income of $40,000, Raleigh must sell 1,118 units: (1,118 units * $170) - $150,000 = $40,060.

In 2016, Raleigh Sold 1,000 Units at $500 Each, and Earned