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Malone Company produces a product that has a variable cost of $30 per unit and a...

Malone Company produces a product that has a variable cost of $30 per unit and a sales price of $70 per unit. The company’s annual fixed costs total $820,000. It had net income of $380,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $60 per unit.


Required

  1. If Malone desires to maintain net income of $380,000, how many additional units must it sell to justify the price decline?

  2. Assume that in addition to lowering its selling price to $60, Malone also desires to increase its net income by $87,000. Determine the number of units the company must sell to earn the desired income.

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Answer #1
Units sold previous year 30000 =(380000+820000)/(70-30)
a
Net income 380000
Add: Annual fixed costs 820000
Required contribution margin 1200000
Divide by contribution margin per unit 30 =60-30
Units to be sold 40000
Additional units to be sold 10000 =40000-30000
b
Net income 467000 =380000+87000
Add: Annual fixed costs 820000
Required contribution margin 1287000
Divide by contribution margin per unit 30 =60-30
Number of Units to be sold 42900
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