SOLUTION:

1 BEP units last year Fixed Costs 300,000

15,000
CM per unit 20.00

Fixed Costs 300,000 50.00 SP/U

Variable Costs 750,000 30.00 VC/U
1,050,000 20.00 CM/U

2 Sales in units Fixed Costs + Desired Profit

CM per unit

3 Old CM per unit Increase

Variable Cost per Unit 30.00 4.00
Fixed Costs 300,000 6,000

New BEP in units: Fixed Costs 306,000

19,125
CM per unit 16.00

4 Net Income last year:

Sales 1,250,000
Variable Cost 750,000
Contribution Margin 500,000
Fixed Cost 300,000
Net Income 200,000

Sales in units Fixed Costs + Desired Profit

CM per unit

Checking:

Sales 1,581,250
Variable Cost 1,075,250
Contribution Margin 506,000
Fixed Cost 306,000
Net Income 200,000

5 Old CM Ratio:
Selling Price per Unit 50.00 100%
Variable Cost per Unit 30.00 60%
Contribution Margin per Unit 20.00 40%

After changes in variable cost per unit

Selling Price per Unit 56.67 100%

Variable Cost per Unit 34.00 60%
Contribution Margin per Unit 22.67 40%

Formula to get the new selling price: Variable cost per unit divide by the Variable cost r
 units

580,000
29,000 units
20.00

New CM per unit

34.00
306,000

units

506,000
31,625 units
16.00

SAME RATIOS

e by the Variable cost ratio to get the 100% (P34.00/60%)