Pharoah Company had $296,300 of net income in 2019 when the selling price per unit was $154, the variable costs per unit were $90, and the fixed costs were $574,100. Management expects per unit data and total fixed costs to remain the same in 2020. The president of Pharoah Company is under pressure from stockholders to increase net income by $54,400 in 2020.
1. Compute the number of units sold in 2019.
2. Compute the number of units that would have to be sold in 2020 to reach the stockholders' desired profit level.
3. Assume that the Company sells the same number of units in 2020 as it did in 2019. What would the selling price have to be in order to reach the stockholders' desired profit level?
1. To find number of units sold in 2019. Let it be X
Net income = [154-90]X - 574,100
296,300 = 64X - 574,100
64X = 870400
X = 870400/64 = 13,600 ...
The solution aims to find the number of units sold given the net income, selling price per unit, variable costs and fixed costs and vice versa with changes in variables.