Happy Ten produces sport socks. The company has fixed expenses of $90,000, and v

Question

Happy Ten produces sport socks. The company has fixed expenses of $90,000, and variable expenses of $0.90 per package. Each package sells for $1.80. The number of packages Happy Ten needs to sell to earn a $26,000 operating income is 128,889 packages (rounded). If Happy Ten can decrease its variable costs to S0.70 per package by increasing its fixed costs to $105,000, how many packages ill it have to sell to generate $26,000 of operating income? Is this more or less th before? Why? Hom Begin by computing the sales in units at various levels of operating income using the contribution margin. - Sales in units (Round your answer up to the nearest whole unit.) Happy Ten will have to sell packages to generate $26,000 of operating income. Is this more or less than before? Why? Happy Ten would have to sell | packages of socks to earn $26,000 of operating income The increase in fixed costs I completely offset by the units in order to achieve its target profit level in variable costs at the pnor target profit volume of sales. Therefore, Happy Ten will need to sell Choos se from any drop-down list and then continue to the next question Save for Later

Explanation / Answer

Begin by Computing Sales in units at various Level of oprating Income using Contribution margin

Sales in Units = (New Fixed Cost + Operating Income) / Contribution Margin

= (New Fixed Cost + Operating Income) / (Sales Price Per Unit - New Variable Cost Per Unit)

= ($ 105,000 + $ 26,000) / ($ 1.80 - $ 0.70)

= $ 131,000 / $ 1.10

= 119,091 units (Round off at nearest whole unit)

Happy Ten will have tp sell 119,091 packages to generate $ 26,000 of oprating income

is this more or less than before ? Why?

Happy Ten would have to sell 9798 (128,889 - 119,091) Less Packages of socks to earn $ 26,000 of oprating income. The increase in fixed cost $ 15,000 ($ 105,000 - $ 90,000) completely offset by the Decrease in Variable costs at the prior target profit volume of sales. Therfore, Happy ten will need to sell 119,091 units in order to achive its target profit level.

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