Herrera Company manufactures a product that has a variable cost of $27 per unit and a sales price of $72 per unit. The company’s annual fixed costs total $810,000. It had net income of $360,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $67 per unit.

a. If Herrera desires to maintain net income of $360,000, how many additional units must it sell to justify the price decline?
b. Assume that in addition to lowering its selling price to $67, Herrera also desires to increase its net income by $70,000. Determine the number of units the company must sell to earn the desired income.

  • CreatedFebruary 07, 2014
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