Number of units to be produced to maintain the same net income.
Wilson is a wholesale distributor of widgets. The company services groceries, convenience stores, and superstores like Wal-Mart. Small but steady growth has been achieved over the past few years while widget prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to project the current years after tax net income of $264,960.
Average selling price: $9.60 per case
Average variable costs:
Widget production: $4.80 per case
Selling expense: $.96 per case
Total: $5.76 per case
Annual fixed costs: $1,056,000
Expected annual sales volume: 390,000 cases
Tax rate: 40%
Manufacturers of widgets have announced that they will increase prices of their products on average 15% in the coming year due to increases in raw materials and labor costs. All other variable costs change 15% as well. Wilson expects all other costs will remain at the same rates or levels as the current year. These changes have not been entered into the information presented above.
Answer the following:
a) What is Wilson's break-even point in cases of widgets for the current year?
b) What selling price per case must Wilson charge to cover the 15% increase in variable production costs (the 15% increase includes all variable costs associated with this problem) and still maintain the current contribution margin percentage?
c) What is the number of units that Wilson must achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of widgets remains at $9.60 per case and the variable production costs of widgets increase 15%?