Question

Riverbed Company had $151,800 of net income in 2016 when the selling price per unit was $151, the variable costs per unit were $91, and the fixed costs were $575,800. Management expects per unit data and total fixed costs to remain the same in 2017. The president of Riverbed Company is under pressure from stockholders to increase net income by $64,300 in 2017.

1. Compute the number of units sold in 2016. (Round answer to 0 decimal places, e.g. 1,225.)
2. Compute the number of units that would have to be sold in 2017 to reach the stockholders' desired profit level.
3. Assume that Naylor Company sells the same number of units in 2017 as it did in 2016. What would the selling price have to be in order to reach the stockholders? (Round answer to 2 decimal places, e.g. 12.25.)

Answer 1

Riverbed Company

1. The number of units sold in 2016:

= 12,127

2. The number of units that would have to be sold in 2017 to meet desired profit level of stockholders:

= 13,199

3. Assuming that Naylor Company sells the same number of units in 2017 as it did in 2016, the selling price have to increase to $156.30 per unit, in order to achieve stockholders' desire for more profitability.

Step-by-step explanation:

a) Data and Calculations:

2016 net income = $151,800

Selling price = $151

Variable cost per unit = $91

Contribution = $60

Fixed costs = $575,800

Units sold = 12,127 ($575,800 + 151,800)/$60

When net income increases by $64,300, the units sold will increase by 1,072 ($64,300/$60)

Sales volume = 13,199 (12,127 + 1,072)

To achieve the same level of profitability ($216,100) at the same level of units sold, the price will increase by $5.30 ($64,300/12,127) to $156.30.