Paluso Corporation manufactures numerous products, one of which is called Alpha42. The company has provided the following data about this product: Management is considering increasing the price of Alpha42 by 4%, from $18.00 to $18.72. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 180,000 units to 162,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha-42 earn at a price of $18.72 if this sales forecast is correct?

Question

Paluso Corporation manufactures numerous products, one of which is called Alpha42. The company has provided the following data about this product:  Management is considering increasing the price of Alpha42 by 4%, from $18.00 to $18.72. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 180,000 units to 162,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha-42 earn at a price of $18.72 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($18.72 per unit − $14.00 per unit) × 162,000 units − $640,000
Profit = ($4.72 per unit) × 162,000 units − $640,000
Profit = $764,640 − $640,000 = $124,640

Paluso Corporation Manufactures Numerous Products, One of Which Is Called