Given the following data Per Unit Total Sales Less variable

Given the following data: Per Unit Total Sales Less variable expenses Contribution margin Less fixed expenses Net income $15 $40,500 21,600 18,900 12,500 6,400 If sales decrease by 400 units, by what percent would fixed costs have to be reduced to maintain current net income? ? 22.4% o 51.2% 28.9% 22.3%

Solution

A.22.4%.

first let us know the number of units to be sold

=>total sales / sales price per unit

=>$40,500 / $15

=>2,700 units.

sales decrease by 400 units

=> new sales units = 2700 - 400

=>2300 units.

now,

the contribution from 2300 units = 2300 *$7 =>$16,100.

now for net income to be $6400

fixed expenses should be

=>contribution - net income

=>$16,100 - 6,400

=>$9,700..............(this is new level of fixed expenses)

reduction in net income = $12,500 - 9,700 =>$2,800.

so, reduction in fixed expenses as a percentage = $2,800 / $12,500 * 100

=>22.40%