Danielle sells a single product at $20 per unit.The firm's most recent income statement revealed unit sales of 100,000,variable costs of $800,000,and fixed costs of $400,000.If a $4 drop in selling price will boost unit sales volume by 20%,the company will experience:

Question

Quizplus · Accepted Answer

Current revenue = 100,000 units x $20/unit = $2,000,000
Current total cost = $800,000 + $400,000 = $1,200,000
Current profit = $2,000,000 - $1,200,000 = $800,000

If the selling price drops by $4 and sales volume increases by 20%, the new sales volume would be:
100,000 units x 1.2 = 120,000 units

The new revenue would be:
120,000 units x $16/unit = $1,920,000

However, the total cost would remain the same:
$800,000 + $400,000 = $1,200,000

The new profit would be:
$1,920,000 - $1,200,000 = $720,000

The difference between the current profit and new profit is:
$800,000 - $720,000 = $80,000

Therefore, the company will experience an $80,000 drop in profit if they decrease the selling price by $4 and increase sales volume by 20%. Option C is the correct answer.

Danielle Sells a Single Product at $20 Per Unit