Question

Gulph Company reported the following results from the sale of 5,000 hammers in May: sales $200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000. If Gulph increases the selling price of hammers by 10% on June 1, then ________ hammers will have to be sold in June to maintain the same level of net income.

Answer 1

Number of units= 4,000 units

Step-by-step explanation:

Giving the following information:

Sales $200,000

variable costs $120,000

fixed costs $60,000

net income $20,000.

We have to maintain a net income of $20,000.

First, we will calculate the selling price per unit and the unitary variable cost:

Selling price= 200,000/5,000= $40 per unit

Variable cost per unit= 120,000/5,000= $24 per unit

New selling price:

Selling price= $44

Contribution margin per unit= 44 - 24= $20

Now, we have to find the total contribution margin required:

Contribution margin required= net operating income + fixed costs

Contribution margin required= 20,000 + 60,000= 80,000

Number of units= total contribution margin/ unitary contribution margin

Number of units= 80,000/20= 4,000 units