ABC Company manufactures and sells a single product for $40 per unit. Variable c

Question

 ABC Company manufactures and sells a single product for $40 per unit. Variable costs are $15 per unit and fixed costs total $163,500. During 2018, the company sold 25,160 units of this product to customers. In order to improve profitability, the president of ABC Company believes the following changes should be made in 2019:  1. increase the selling price of the product by 25%  2. automate a portion of the production process which will reduce    variable costs by 20% per unit but will add an additional fixed    cost of $15,000 per year  3. increase advertising by $40,000  Assume these changes are made. Calculate the number of units that ABC Company must sell in 2019 in order to earn a target profit equal to 30% of sales. Enter your answer as a number (i.e., 1,000). Do not use the $, decimals, or type the word units after your answer. 

Explanation / Answer

Revised selling price = 40*1.25=$50 Revised variable cost = 15*0.8 = 12 Revised fixed costs = 163500+15000+40000= 218500 Target profit per unit = 50*30% = 15 Required number of unit sales =218500/(50-15-12)= 9500

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