XYZ Inc manufactures and sells widgets. In 2008, the firm produced and sold 20,000 units. Management has just reviewed the following income statement.

XYZ Inco

Income Statement (20,000 widgets)

For the year ended December 31, 2008

Sales $ 300,000

Less Total Variable Costs ( 220,000)

Contribution Margin $ 80,000

Less Total Fixed Costs ( 40,000)

Net Income before taxes $ 40,000

Income Taxes Expense (20 %) ( 8,000)

Net Income $ 32,000

Management is hoping to have income of $ 40,000 after taxes in 2021.

1. Calculate quantity of widgets units and sales dollars to meet the goal, $ 40,000 in income after taxes.

In an effort to capture a greater market share, management is considering selling a deluxe model that would sell for twice the price of a standard widget and increase variable costs per unit by $ 4 per deluxe widget. Fixed costs would increase by $ 6,000.

Management expects to sell two standard widgets for every one deluxe widget.

2. Calculate the quantity of the deluxe and the standard widget to break even