Question

Perry Corporation produces and sells a single product. Data for that product are: Sales price per unit Variable cost per unit Fixed expenses for the month Currently sellin $255 $190 $610,000 13,000 units Upper management is considering using a biodegradable packaging which costs $5 more per unit but it produces less waste in the long run. Management plans to increase advertising by $6000 per month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 1500 units per month. How many units would the company have to sell to maintain current operating income if these changes are implemented? Round up to the nearest whole unit.

A) 14,184 units
B) 13,092 units
C) 10,267 units
D) Cannot be determined from the information given

Answer 1

c. 10,267 units

Step-by-step explanation:

The computation of current operating income is shown below:-

Current break even point = Fixed costs ÷ (Selling price per unit - Variable cost per unit)

= $610,000 ÷ ($255 - $190)

= $610,000 ÷ $65

= 9,385 units

If changes are implemented

Variable cost per unit = $190 + $5

= $195

Fixed expenses = $610,000 + $6,000

= $616,000

Break even point = Fixed costs ÷ (Selling price per unit - Variable cost per unit)

= $616,000 ÷ ($255 - $195)

= $616,000 ÷ $60

= 10,267 units