Palm Furniture makes beach-themed furniture. In the prior-year, the unit selling price for a dining set was $1,000 with a unit variable cost of $400 and a unit fixed cost of $200 based on prior production and sales of 5,000 dining sets. For the current year, Palm Furniture is planning to increase the unit selling price to $1,100 since the unit variable cost is increasing 20%. Assuming that at the higher selling price, the company feels that sales may decrease to 4,500 dining sets, what profit will Palm Furniture expect to recognize in the current year?

Question

Quizplus · Accepted Answer

Sales Revenue - Total Costs = Profit; Sales Revenue = New Selling Price per Unit x Expected Sales = [$1,100 x 4,500 units = $4,950,000; Total Costs = Total Variable Costs + Total Fixed Costs = [{Variable cost per unit x (1 + 20%)} x Expected Units, 4,500 units] + (Fixed Cost per Unit x original units, 5,000)] = ($400 x 1.2 x 4,500) + ($200 x 5,000 units) = $2,160,000 + 1,000,000 =$3,160,000; Sales Revenue, $4,950,000 - Total Costs, $3,160,000 = $1,790,000 Profit

Palm Furniture Makes Beach-Themed Furniture