To determine the number of hammers that need to be sold in June to maintain the same level of net income, we need to consider the impact of the increased selling price on the company's financials.
In May, Gulph Company sold 5,000 hammers and achieved a net income of $20,000. Let's break down the financials for May:
Sales: $200,000
Variable costs: $120,000
Fixed costs: $60,000
Net income: $20,000
To calculate the contribution margin per hammer, we subtract the variable costs per hammer from the selling price per hammer:
Contribution margin per hammer = (Sales - Variable costs) / Number of hammers sold
Contribution margin per hammer = ($200,000 - $120,000) / 5,000
Contribution margin per hammer = $80,000 / 5,000
Contribution margin per hammer = $16
Now, let's consider the impact of the 10% increase in the selling price on the financials for June. The new selling price per hammer will be 110% of the original selling price:
New selling price per hammer = 1.10 * Selling price per hammer
New selling price per hammer = 1.10 * $200,000 / 5,000
New selling price per hammer = $220,000 / 5,000
New selling price per hammer = $44
To maintain the same level of net income, the contribution margin per hammer needs to remain the same. Therefore, we can set up the following equation:
Contribution margin per hammer = (New selling price per hammer - Variable costs per hammer) / Number of hammers to be sold
$16 = ($44 - $120,000 / Number of hammers to be sold
Solving for the number of hammers to be sold:
Number of hammers to be sold = $120,000 / ($44 - $16)
Number of hammers to be sold = $120,000 / $28
Number of hammers to be sold = 4,285.71
Rounding up to the nearest whole number, Gulph Company will need to sell approximately 4,286 hammers in June to maintain the same level of net income.