Lon Capa Question 1 X Company is considering a modification to one of its main p
ID: 2463430 • Letter: L
Question
Lon Capa Question 1
X Company is considering a modification to one of its main products that would make it more attractive to customers. A market research study costing $7,200 was conducted, and it indicated that the company could increase the price of the product by $2.56 with no decrease in unit sales; the current price is $10.22. Variable costs for the product are $3.48 and will not change as a result of the modification, but additional equipment would have to be rented, increasing fixed costs from $11,760 to $16,280. At what unit sales level would X Company be indifferent between modifying the product and not modifying it?Explanation / Answer
Statement showing computations Particulars No Modification Modification Difference Sales Price per unit 10.22 12.78 (2.56) Variable Costs per unit 3.48 3.48 - Contribution per unit = SP- VC 6.74 9.30 (2.56) Fixed costs 11,760.00 16,280.00 (4,520.00) Units sales Level to be indiff = Diff in FC/ Diff in Cont Units sales Level to be indiff = 4,520/2.56 Units sales Level to be indiff = 1,765.63 or 1,766 Units
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