Minden Company manufactures a high-quality wooden birdhouse that sells for $20 p
ID: 2504084 • Letter: M
Question
Minden Company manufactures a high-quality wooden birdhouse that sells for $20 per unit. Variable
costs are $6 per unit, and fixed costs total $180,000. During 2004, the company sold 24,000
birdhouses to customers. The president of Minden Company believes the following changes should be
made in 2005:
1. the selling price of the birdhouse should be reduced by 10%
2. increase advertising by $30,000
Assume these changes are made. Calculate the number of units Minden Company must sell in 2005 in
order to earn a target profit equal to 20% of sales
Explanation / Answer
NEW SALE PRICE = 20*(1-0.10) = 18 PER UNIT
NEW SALES = 18 *24000 = $432000
TARGET PROFIT = 20% OF NEW SALES
= 20% OF 432000
=$86400
CONTRIBUTON P.U. = SALES PRICE P.U.