The following information pertains to a product sold by Gomez Company:

Instructions:
1. Determine the net income or loss

a. if 17,000 units are sold.

b. if 20,000 units are sold.

c. if 23,000 units are sold.
2. Gomez Company is considering purchasing equipment that would reduce the unit variable cost to \($8.50.\)
However, fixed costs would increase to \($58,000.00.\)

a. If 20,000 units were expected to be sold, would Gomez Company’s net income increase if the new equipment were purchased and used?

b. If only 17,000 units were expected to be sold, would Gomez Company's net income increase if the new equipment were purchased and used?
3. Gomez Company believes that a 10% reduction in the unit sales price would result in a 30% increase in the number of units sold. Assume that normal sales volume before any price reduction was 20,000 units.
Assume also that the equipment described in instruction 2 was not purchased, so that the fixed costs and unit variable costs were \($48,000.00\) and \($9.60\), respectively. Would the reduction in sales price increase or decrease net income?

Transcribed Image Text:

Unit Sales Price $12.00 Unit Variable Costs $9.60 Unit Contribution Margin $2.40 Fixed Costs $48,000.00