Question

Perry Corporation produces and sells a single product. Data for that product are:

Sales price per unit $250

Variable cost per unit $180

Fixed expenses for the month $600,000

Currently selling 12,000 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 $10,000 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 2,000 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.

Answer 1

13,077 units

Step-by-step explanation:

Hint : Work from bottom to top

Current Operating Income = Sales - Expenses

= (12,000×$250) - ($180×12,000+$600,000)

= $3,000,000 - $2,760,000

= $240,000

Income Statement - New

Sales ( $250× 13077) $3,269,250

Less Variable Costs :

Current ( $180 × 13077) ($2,353,860)

Biodegradable packaging($5 × 13077) ($65,385)

Contribution $850,000

Less Fixed Costs :

Current ($600,000)

Advertising ($10,000)

Target Operating Income $240,000

Contribution per unit = 250-180-5

= $65

Number of Units = $850,000/ $65

= 13077