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 an operating income of $21,000?
A) 1,000 units.
B) 2,700 units.
C) 1,700 units.
D) 2,950 units.Units required = (38,400 + 21,000)/22 = 2,700 units.

Question

Quizplus · Accepted Answer

In order to find the units required to earn an operating income of $21,000, we need to use the formula Units required = (Fixed expenses + Desired operating income) / Contribution margin per unit. Given that the selling price is reduced by 5%, the contribution margin per unit will decrease. However, variable expenses reduced by $1.00 will increase the contribution margin per unit. Therefore, the net effect of these changes on the contribution margin per unit is unknown. Thus, we cannot eliminate any option based on this information alone. Only option B satisfies the required calculations, according to the formula. Therefore, B is the best choice.

If the Selling Price Is Reduced by 5%,variable Expenses Reduced