Question :
Smith and Sons is developing the 2011 budget. In 2011 the company would like to increase selling prices by 20 percent and as a result expects a decrease in sales volume of 10 percent. Cost of goods sold as a percentage of sales is expected to increase to 65%. Other than depreciation, all operating costs are variable as a percentage of total sales.
Other Requirements: Sales (100,000 units) $400,000/$100,000 = $ 4 per unit $400,000
Less: cost of goods sold ($250,000/$400,000= 62.5%) 250,000
Gross profit (150,000/250,000 = .37.5) 150,000
Operating expenses (includes $10,000 of depreciation)
((110,000 -10,000)/100,000 units = $1.00 per unit) 110,000
Net income (40,000/400,000 = 10%) $ 40,000