Happy Feet produces sport socks. The company has fixed expenses of $ 85 comma 000 and variable expenses of $ 0.85 per package. Each package sells for $ 1.70. The number of packages Happy Feet needed to sell to earn a $ 24 comma 000 operating income was 128 comma 236 packages (rounded ). If Happy Feet can decrease its variable costs to $ 0.65 per package by increasing its fixed costs to $ 100 comma 000, how many packages will it have to sell to generate $ 24 comma 000 of operating income? Is this more or less than before? Why?

$118,095; Less

Explanation:

Given that,

Fixed expenses = $ 85,000

Variable expenses = $ 0.85 per package

Selling price of each package = $1.70

Fixed expenses to $100,000.

Variable cost per unit decreases to $0.65 per package

Target profit = $24,000

Required contribution:

= Required profit + Revised fixed cost

= $24,000 + $100,000

= $124,000

Contribution per unit:

= Selling price - Variable cost

= $ 1.70 - $ 0.65

= $1.05

Number of units to be sold:

= Required contribution ÷ Contribution per unit

= $124,000 ÷ $1.05

= $118,095

Happy will have to sell:

= Units need to sell - Units sold

= 128,236 - $118,095

= 10,141 (units less)

Happy feet would have to sell 10,141 less packages of socks to earn $24,000 of income.

Therefore, Happy feet need to sell less units to achieve its target profit.

answer; capital structure decision;