Question

In accounting, cost-volume-profit analysis is a useful tool to help managers predict how profit will be affected by changes in prices or sales volume. Net income, NININ, I, is calculated using the formula NI = (SP-VC)(V)-FCNI=(SP−VC)(V)−FCN, I, equals, left parenthesis, S, P, minus, V, C, right parenthesis, left parenthesis, V, right parenthesis, minus, F, C, where SPSPS, P is the sales price, VCVCV, C is the variable cost per unit, VVV is the sales volume, and FCFCF, C are fixed costs. Rearrange the formula to solve for sales volume (V)(V)left parenthesis, V, right parenthesis.

Answer 1

(a)
`V=(NI+FC)/(SP-VC)`

(b)V=240 Units

Explanation:

NI=(SP-VC)V-FC

We are required to make V the subject of the equation

Add FC to both sides

NI+FC=(SP-VC)V-FC+FC

NI+FC=(SP-VC)V

Divide both sides by SP-VC

`V=(NI+FC)/(SP-VC)`

When

• Net Income(NI)=$5000
• Sales Price(SP)=$40
• Variable Cost(VC)=$15
• Fixed Costs(FC)=$1000

Volume of Sales

`V=(5000+1000)/(40-15)\\=(6000)/(25)\\\\=240`