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I found that someone else had answered this question on chegg. I'm wondering why, for variable costs they did 1800*10 when the question says variable
I found that someone else had answered this question on chegg.
I'm wondering why, for variable costs they did 1800*10 when the question says "variable cost per muffler will remain unchanged"
Below are my answers:
Silencer Company sells a single product, mufflers for leaf blowers. The business's profit calculation for last year is shown here: Sales revenue (2000 units @ $25) $ 50 000 Less: Variable costs (20 000) Contribution margin $ 30 000 Less: Fixed costs (22 000) Profit $ 8 000 Silencer has decided to increase the price of its product to $30 per muffler. The business believes that if it increases its fixed advertising (selling) cost by $3400, sales volume next year will be 1800 mufflers. Variable cost per muffler will be unchanged. Required: a. Using the above income statement format, show the calculation of expected profit for Silencer's operations next year. b. How many mufflers would Silencer have to sell to earn as much profit next year as it did last year? C. Do you agree with Silencer's decision? Explain why or why not. a) Income statement Sales (1800*30) 54000 Variable cost (1800*10) 18000 Contribution margin 36000 Fixed cost (22000+3400) 25400 Net operating income 10600 b) Target unit = (25400+8000)/(30-10) = 1670 Unit c) Yes, Silencer's decision is acceptable because it increases net operating income by (10600-8000) = $2600 Comment ( costs Sales revenue ( 18 ou @ $30) $59000 Less: Variable (20, 000) Centribution margin $34,000 Less: fixed cost (25, 900) Proht 8, 600 b) 8000 = 30x (20,000 + 25 900) 8oou = 300 +45900 45900 + 45400 53900 - 300 30 30 T - 1780 units agree with now telling less probt Silencer's units decision because they and achieving a higher areStep by Step Solution
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