Question

Jensen Company has the following situation: Sales Price: $50 per unit Variable Cost Per Unit: $30 per unit Fixed Costs: $20,000 Units Sold: 4.000 Jensen is considering lowering the price to $45 per unit which she believes would increase units sold to 5,000 Required • Calculate the net income under the current situation and then again with the changes. • Using the original data, what selling price would be needed to have a net income of $20,000? Should Jensen lower the price? Support your answer. Current Situation With Changes Cost Per Unit Net Income Break-Even in Units Units for Net Income of $50,000 Problem 4: McDowell's Restaurant

Answer 1

Answer 1. Calcullation of Net In come ynder current and with changes sityątion with Charge Cuvrent sitlation I5ales Price 2- Variable Cost per unit Contribytjon pev unit (1-2) 4| Units sold 50 45 (30) (27) 18 20 5000 4000 Contribution (3x4) C- Fixel Cojts 15 80000 90000 (20000) (20000) Net Income (5-7) F0000 Go00s 2 Osing the original Raba, what is selling price woyld be needed to have net 1ncome of $ 20000. Fixed Caits + Expectel Net Income Selling Arice to egin net income 6f $20000 P/V Ratio + 2000 o 20000 So - 30 X (00 400 00 G0% $ 1ov000 3. Should Jen sen lower the price? Yes, Jensen should lowev the price if Jensen recavers the fixed casts In the given changes which Fen sen sold units at $45, the company 9 net income of $70000 which 1s More than by $ 10000 earsis in the curent sitygtjon. As per the concept of the maiginal Costig when the Company recovers it's flxed Cost, the company shovd sold the units a price greater than the va1/qble cost pev unit. Therefore, Jensen shoyld sale the ynits at a loues puice 95 Jenjen secovevs the fixed Costs.

4. Cost per unit Cost per unit Vaviable cest per unit + Fixet cast per yni- Cost N unit in Cyzent sily 200J0 20 gouo vnits 30 + as per unje Cost per ynit 1n chenged situgtion So00 ynits 30 + 4 :$ 34 per voit 5. Bregk Eveat in units Fixed Cost eegh Even (in unita) Contvibyt)on per ynit 6reak Even (in units) for lyregt SI 20 1000 ynits Bregk Even (in ynits) for changel sitptjn III) - || units. Units for Net income ot $ so000 6. Fixed cost t+ Expeclel Net Income Units for Net Income Contribyhan per unit of $ so o00 2000. + so Vaits for Net Inome of $ so 000 qt unent Sitygog 3s00 ynits Units for Nel- Income of 20 ouo tsoo00 $ sopoo qt chaaged sibugbion 3888 · 83 4nit

Cyrnent sibuytan Go000 1. Net Income → 79000 Changed Slauglyon 2. Selling Aice woyld be needed to Cquin $ 100000 net Igi ume of $20000 3. Shoyll Tensen lower the Yes. $ 35 FQr 4nit 4. Cost per Unit with chanycu → $ 34 per ynit 5. Bregle Euen Poigt (in vo) lo00 ynibs t|1. II ynits. Cyrrent < Changel 6. units for Net In come a100 ynitr Carment chnged of $ soooD 3888 . 88 ynit