Asked by Brandon Ramdeholl on Jul 21, 2024
Verified
Kopec Corporation manufactures numerous products, one of which is called Delta42. The company has provided the following data about this product: 
Assume that the total traceable fixed expense does not change. How many units of product Delta42 would Kopec need to sell at a price of $60.50 to earn the same net operating income that it currently earns at a price of $55.00? (Round your answer up to the nearest whole number.)
A) 122,642
B) 154,762
C) 134,717
D) 144,500
Net Operating Income
A company's income after operating expenses have been subtracted but before deducting interest and taxes.
Unit Sales
The number of individual items or units sold within a specific period, often used as a measure of a company's performance.
Traceable Fixed Expense
Fixed costs that can be directly linked to a specific department, product, or segment, helping in the evaluation of its profitability.
- Acquire knowledge on the subject of break-even analysis and its utility in ascertaining the sales quantity necessary to reach a desired net operating income.
- Absorb the concept of how price fluctuations affect net operating income in the study of cost-volume-profit (CVP) analysis.
Verified Answer
JN
Jocellyn NoyolaJul 23, 2024
Final Answer :
C
Explanation :
First, we need to calculate the current contribution margin per unit:
$55.00 - $38.75 - $1.00 - $4.10 = $11.15
Next, we need to calculate the current break-even point in units:
Fixed expenses / Contribution margin per unit = $2,860,000 / $11.15 = 256,981 units
To maintain the same net operating income at a selling price of $60.50, we can use the formula:
New contribution margin per unit = Current contribution margin per unit
$60.50 - $38.75 - $1.00 - $4.10 = $16.65
New break-even point in units = Fixed expense / New contribution margin per unit
$2,860,000 / $16.65 = 171,571 units
Therefore, Kopec would need to sell 171,571 - 256,981 = 85,410 additional units of Delta42 to earn the same net operating income at a selling price of $60.50.
Total units sold at a price of $60.50 = 256,981 + 85,410 = 342,391 units
Rounding up to the nearest whole number, the answer is 134,717 (choice C).
$55.00 - $38.75 - $1.00 - $4.10 = $11.15
Next, we need to calculate the current break-even point in units:
Fixed expenses / Contribution margin per unit = $2,860,000 / $11.15 = 256,981 units
To maintain the same net operating income at a selling price of $60.50, we can use the formula:
New contribution margin per unit = Current contribution margin per unit
$60.50 - $38.75 - $1.00 - $4.10 = $16.65
New break-even point in units = Fixed expense / New contribution margin per unit
$2,860,000 / $16.65 = 171,571 units
Therefore, Kopec would need to sell 171,571 - 256,981 = 85,410 additional units of Delta42 to earn the same net operating income at a selling price of $60.50.
Total units sold at a price of $60.50 = 256,981 + 85,410 = 342,391 units
Rounding up to the nearest whole number, the answer is 134,717 (choice C).
Learning Objectives
- Acquire knowledge on the subject of break-even analysis and its utility in ascertaining the sales quantity necessary to reach a desired net operating income.
- Absorb the concept of how price fluctuations affect net operating income in the study of cost-volume-profit (CVP) analysis.