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