Use the following information for the next 3 questions.

Presented below is the income statement of Goodwin Inc. The income statement is based on sales of 100,000 units at $20 per unit.

Goodwin estimates that 80% of Cost of Goods Sold isvariablecosts, and 80% of Operating expenses isfixed costs.

Sales

$2,000,000

Less: Cost of goods sold

600,000

Gross margin

$1,400,000

Less: Operating expenses

500,000

Net income

$900,000

Goodwin is considering lowering the sales price in order to increase sales. Management believes that if it reduces the selling price by 10%, then sales (in units) will increase 10%.

1.If Goodwin reduces the selling price by 10% and unit sales increase 10%, net income will:

a.Increase

b.Decrease

2.Refer to the previous question. What is the amount of the increase or decrease in net income?

3.Assume Goodwin reduces the selling price by 10%. How many units would Goodwin have to sell to earn the same TOTAL contribution margin prior to the reduction in the selling price?