Holder Manufacturing had $125,000 of net income in 2015 when the selling price per unit was $100, the variable costs per unit were $70, and the fixed costs were $475,000. Management expects per unit data and total fixed costs to remain the same in 2016. The president of Holder Manufacturing is under pressure from stockholders to increase net income by $60,000 in 2016.
Instructions
A) Compute the number of units sold in 2015.
B) Compute the number of units that would have to be sold in 2016 to reach the stockholders' desired profit level.
C) Assume that Holder Manufacturing sells the same number of units in 2016 as it did in 2015. What would the selling price have to be in order to reach the stockholders' desired profit level.

Answer:

Holder Manufacturing

A. The number of units sold in 2015 is:

= 20,000 units

B. The number of units that would have to be sold in 2016 to reach the stockholders' desired profit level is:

= 22,000 units

C. The selling price to reach the stockholders' desired profit level, assuming that Holder Manufacturing sells the same number of units in 2016 as it did in 2015 is:

= $103 per unit.

Explanation:

a) Data and Calculations:

Net income in 2015 = $125,000

Selling price per unit = $100

Variable costs per unit = $70

Contribution per unit = $30

Fixed costs = $475,000

Number of units sold in 2015:

Contribution margin = Net income + Fixed costs

= $125,000 + $475,000 = $600,000

Number of units sold = $600,000/$30 = 20,000 units

For 2016:

Contribution margin = $660,000 ($600,000 + $60,000)

Number of units to be sold = 22,000

If units sold in 2016 = 20,000, selling price would be:

Contribution would be = $33 ($660,000/20,000)

Selling price = Variable cost + Contribution margin per unit

= $70 + $33 = $103

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Foreign firm
Enter Not Enter
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Budgeted Production Volume Direct Labor Hours Per Unit
Flutes 2,000 units 2.0
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$ per direct labor hour
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Total Per Unit
Factory Overhead Cost Factory Overhead Cost
Flutes $ $
Clarinets
Oboes
Total $

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