Answer:
Net income = $ 40,500 (assuming fixed costs remain constant)
Net income = $ 45,000 when fixed costs do not remain constant.
Step-by-step explanation:
We calculate the unit price by dividing the total cost by the number of units.
Units 22,000
Units Sales $ 220,000 / 22,000= $ 10
Less variable costs:
Manufacturing costs $ 77,000 /22,000= $3.5
Selling and administrative costs $ 44,000 /22,000= $2
Contribution margin $ 99,000
Less fixed costs:
Manufacturing costs $ 30,800
Selling and administrative costs $ 18,700
Net income $ 49,500
We apply the unit costs to the number of units given to get the net income for 20,000 units.
Units 20,000
Units Sales $ 10*20,000= $ 200,000
Less variable costs:
Manufacturing costs $3.5*20,000= $ 70,000
Selling and administrative costs $2*20,000= $ 40,000
Contribution margin $ 90,000
Less fixed costs:
Manufacturing costs $ 30,800 (assuming fixed costs remain constant)
Selling and administrative costs $ 18,700 (assuming fixed costs remain constant)
Net income $ 40,500
When fixed costs also change .
Units 20,000
Units Sales $ 10*20,000= $ 200,000
Less variable costs:
Manufacturing costs $3.5*20,000= $ 70,000
Selling and administrative costs $2*20,000= $ 40,000
Contribution margin $ 90,000
Less fixed costs:
Manufacturing costs ($ 30,800/ 22,000 )*20,000= 28,000
Selling and administrative costs ($ 18,700 / 22,000 )*20,000= 17,000
Net income $ 45,000