Given the following data: If sales decrease by 500 units,by what percent would fixed costs have to be reduced by to maintain current net income?
A)50.0%.
B)33.3%.
C)25.0%.
D)16.7%.

Question

Given the following data:  If sales decrease by 500 units,by what percent would fixed costs have to be reduced by to maintain current net income?
A)50.0%. 
B)33.3%. 
C)25.0%. 
D)16.7%.

Quizplus · Accepted Answer

To solve the problem, we need to use the formula:

% change in net income = % change in sales - % change in fixed costs

Let x be the % change in fixed costs. Since sales decreased by 500 units, or 2.5% (assuming the original number of units sold was 20,000), we have:

% change in net income = 0% (since we want to maintain current net income)
- 2.5% (change in sales) - x (change in fixed costs)

Simplifying, we get:

x = -2.5% / -1 = 2.5 / 1 = 2.5

Therefore, fixed costs would have to be reduced by 25%, or choice C.

Given the Following Data: If Sales Decrease by 500