ICAEW BIP · Chapter 11 · Question 8 of 10
A company sells 20,000 units a year of a product priced at £50. The variable cost is £30 per unit and fixed costs are £150,000. The company plans to cut the price by 10%. How many units must it sell at the new price to earn the same profit as now (to the nearest unit)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 26,667 units
Explanation
Current profit = 20,000 x (£50 - £30) - £150,000 = £250,000. New price = £50 x 0.9 = £45, so the new contribution is £15 per unit. Required units = (£250,000 + £150,000) / £15 = 26,666.67, so 26,667 units must be sold. A 10% price cut needs a 33% increase in volume just to keep profit the same.
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