Hanover Binding plans to produce 40,000 books next year at a total cost of $1,640,000 with a selling price per book of $66.00.The fixed costs total $280,000.Management is considering lowering the price to $60.00 per book, and feels that this action will cause sales to climb to 50,000 books.What will be the incremental costs incurred if 50,000 books are sold?
A)$340,000
B)$20,000
C)$1,700,000
D)$1,300,000

Question

Quizplus · Accepted Answer

To determine the incremental costs incurred if 50,000 books are sold, we need to calculate the total cost of producing 50,000 books and then subtract the total cost of producing 40,000 books.

Under the original plan, Hanover Binding plans to produce 40,000 books next year at a total cost of $1,640,000. This means that the cost per book is $41.00 ($1,640,000/40,000).

If they lower the price to $60.00 per book and sales climb to 50,000 books, the total revenue would be $3,000,000 (50,000 x $60.00).

To produce 50,000 books, the cost of production would be:

$280,000 (fixed cost) + (50,000 x $41.00) = $2,310,000

Therefore, the incremental cost incurred if 50,000 books are sold would be:
$2,310,000 - $1,640,000 = $670,000

This means that the total cost of producing the additional 10,000 books would be $670,000. Therefore, the best choice is A.

Hanover Binding Plans to Produce 40,000 Books Next Year at a Total