Variable expenses per unit: Direct Material $40 Direct Labour $32 Variable Manufacturing Overhead $18 Fixed expenses: Fixed Manufacturing Overhead $190,000 Fixed Selling Costs $115,000 Fixed Administrative Costs $135,000
Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned
Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Valencia
is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs
were as follows:
Variable expenses per unit: Direct Material $40
Direct Labour $32
Variable Manufacturing Overhead $18
Fixed expenses: Fixed Manufacturing Overhead $190,000
Fixed Selling Costs $115,000
Fixed Administrative Costs $135,000
Required:
(e) The management of Valencia Manufacturing Company is desirous of increasing operating income by 20% in 2019. They expect per unit data and total fixed costs to remain the same in 2018. Determine the number of units that must be sold to earn this target operating profit. Is this a realistic
goal?
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