Question

Fruit Computer Company makes a fruit themed computer. Variable costs are $220 per unit, and fixed costs are $32,000 per month. Fruit Computer Company sells 500 units per month at a sales price of $300. The company believes that it can increase the price if the computer quality is upgraded. If so, the variable cost will increase to $240 per unit, and the fixed costs will rise by 50%. The CEO wishes to increase the company's operating income by 25%. Which sales price level would give the desired results

Answer 1

Fruit Computer Company

The sales price level that would give the desired results is:

= $356 per unit

Step-by-step explanation:

a) Data and Calculations:

Variable costs per unit = $220

Fixed costs per month = $32,000

Monthly sales units = 500 units

Selling price per unit = $300

Before Change After Change

Sales revenue $150,000 $178,000 ($168,000 + $10,000)

Variable costs 110,000 120,000

Fixed costs 32,000 48,000

Total costs $142,000 $168,000

Operating income $8,000 $10,000 ($8,000 * 1.25)

The sales price level that would give the desired results is $356 ($178,000/500). This represents an increase of 18.7% ($56/$300 * 100).