Sugar Corp.has a selling price of $20,variable costs of $12 per unit,and fixed costs of $25,000.Maple expects profit of $300,000 at its anticipated level of production.If Sugar sells 5,000 units more than expected,how much higher will its profits be?
A)$40,000
B)$100,000
C)$60,000
D)$300,000

Question

Quizplus · Accepted Answer

Explanation:Contribution margin per unit = $20 - $12 = $8Profit at anticipated level of production = $300,000Units sold at anticipated level of production = $300,000/$8 = 37,500 unitsIf Sugar sells 5,000 units more than expected, it will sell 37,500 + 5,000 = 42,500 unitsProfit at new level of production = 42,500 * $8 = $340,000Profit increase = $340,000 - $300,000 = $40,000