Answer the following questions using the information below:
Perth TV currently sells flat screen televisions for $180.It has costs of $140.A competitor is bringing a new flat screen television to market that will sell for $150.Perth believes it must lower the price of its television sets to $150 to remain competitive.Marketing believes that the new price will cause sales to increase by 10%,even with the new competitor in the market.Perth's sales are currently 100 000 televisions per year.
-What is the change in operating profit if marketing is correct and only the sales price is changed?
A)$(1 100 000)
B)$1 100 000
C)$300 000
D)$(2 900 000)

Question

Quizplus · Accepted Answer

The new sales price will generate $150 x 110,000 = $16,500,000 in revenue.

The cost of goods sold will remain at $140 per television, resulting in a total cost of $140 x 110,000 = $15,400,000.

Therefore, the operating profit will be $16,500,000 - $15,400,000 = $1,100,000 decrease.

So, the best choice is not to change the sales price because decreasing the sales price will result in a decrease in operating profit.

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