Please i need help on chapter 8 question 8. The answer is D.11,158 but how did they come to the answer?
Currently a product has marginal costs of $40 and a selling price of $60. Fixed costs are
$120,000 and 10,000 units are sold. Inflation will increase both marginal costs and fixed costs
by 10%, but competition means that the selling price can be increased by 5% only.
What volume will have to be sold if the same profits are to be earned?
Current profit is 20 x 10,000 – 120,000 = 80,000.
New fixed costs 132,000 so contribution needed for same profit is 212,000
Contribution per unit is now 63 – 44 = 19
Required volume is 212,000/19 = 11,158
Thanks so much, i have the clear picture now
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