This Quiz: 12 pts Tony Manufacturing produces a single product that sells for $8

Question

This Quiz: 12 pts Tony Manufacturing produces a single product that sells for $80. Variable costs per unit equal $45. The company expects total fixed costs to be $82,000 for the next month at the projected sales level of 2,900 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose management believes that a $80,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by s to OA. 2,320 units ewO B. 2,343 units ec. 1,000 units O D. 2,286 units ticula Cilick to select your answer. ed My Tex 12

Explanation / Answer

Current Costing Structure-

Now the management has decided to increase the Fixed Cost by $80000 expecting an increase in the sold units.

Let the sold unit be "x"

To get the same profit of $ 19500

($35 * X) - ($162000) = $ 19500

(Gross Profit per unit * New sold quantity) - Fixed Cost = Profit

Solving for "x" = 5185.71 Units or 5186 Units

Hence Increase in selling units = 5186-2900 = 2286 units

Answer is D

Particulars Amount ($) Selling price per Unit 80 Variable Cost per Unit 45 Gross Profit per Unit 35 (80-45) Quantity Sold (Nos) 2900 Total Revenue 232000 (2900*80) Total Variable Cost 130500 (2900*45) Total Gross Profit 101500 (2900*35) Fixed Cost 82000 Net Profit 19500 (101500-82000)

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