Jones Company produces a product that has a variable cost of $27 per unit and a sales price of $59 per unit. The company’s annual fixed costs total $720,000. It had net income of $280,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $52 per unit.
a. If Jones desires to maintain net income of $280,000, how many additional units must it sell to justify the price decline?
b. Assume that in addition to lowering its selling price to $52, Jones also desires to increase its net income by $75,000. Determine the number of units the company must sell to earn the desired income.