Question: Capital One produces a single product, which it sells for $8.00 per un

Question

Question:

Capital One produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios.

Suppose that Capital One's management believes that a $1,600 increase in the monthly promotion costs will provide a boost to sales. By what amount must sales increase during the month to justify the contemplated expenditure? Round answerup to the nearest whole number.

Which of the following are correct statements?

200 units.

334 units.

400 units.

668 units.

None of these answer choices are correct.

Explanation / Answer

Cnotribution margin per unit = Selling price per unit - Variable cost per unit

=$8 - $3.20 = $4.80

Icremental Fixed cost per month = $1,600

There for icremental sales volume needed to cover incremental fixed cost per month

= $1,600/$4.80 = 334 Units

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