Tony Manufacturing produces a single product that sells for $100. Variable costs
ID: 2334792 • Letter: T
Question
Tony Manufacturing produces a single product that sells for $100. Variable costs per unit equal $45. The company expects total fixed costs to be $78,000 for the next month at the projected sales level of 3,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose management believes that a $85,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure?
850 units
1,546 units
1,412 units
1,419 units
850 units
1,546 units
1,412 units
1,419 units
Explanation / Answer
Contribution per unit = Sales - Variable cost
= $100 - $45 = $55
Sales must increase to justify this additional expenditure = Additional cost / Contribution per unit
= $85,000 / $55
= 1,545.45 or 1,546 units