The solution is to determine volume to maintain the current profit level. The school's answer...
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The solution is to determine volume to maintain the current profit level. The school's answer is: Profit + Fixed Costs/Contribution Margin ($ 747,500/12.85). I don't know how they came up with 747,500
Question: Casey Partners is concerned about the effects of inflation on its operations. The company currently sells 60,000 units at $25 per unit. The variable production costs are $13 and fixed costs amount to $550,000. Production engineers have advised management that they expect unit labor costs to rise by 3 percent and unit materials costs to rise by 5 percent in the coming year. Of the $13 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 7 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 5 percent as a result of increased taxes and other fixed charges.
The company wishes to maintain the same level of profit in real dollar terms. To accomplish this, profits must increase by 6 percent over the year.
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