Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
$\begin{array}{llcc}
&\text { Charcoal } & \text { Gas } & \text { Total } \
&\text { Barbecues } & \text { Barbecues } &\
\text { Selling price per unit } & \$ 150 & \$ 600 & \
\text { Variable cost per unit } & \$ 60 & \$ 360 & \
\text { Expected unit sales } & 1,400 & 600 & 2,000 \
\text { Sales mix } & 70 \% & 30 \% & 100 \% \
\text { Fixed costs } & & & \$ 180,000
\end{array}$

-Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales price increases 20 percent?
A)$185,600
B)$144,000
C)$132,000
D)$42,000
E)None of the answer choices is correct.

Question

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 $\begin{array}{llcc}
&\text { Charcoal } & \text { Gas } & \text { Total } \
&\text { Barbecues } & \text { Barbecues } &\
\text { Selling price per unit } & \$ 150 & \$ 600 & \
\text { Variable cost per unit } & \$ 60 & \$ 360 & \
\text { Expected unit sales } & 1,400 & 600 & 2,000 \
\text { Sales mix } & 70 \% & 30 \% & 100 \% \
\text { Fixed costs } & & & \$ 180,000
\end{array}$

-Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales price increases 20 percent?
A)$185,600
B)$144,000
C)$132,000
D)$42,000
E)None of the answer choices is correct.

Quizplus · Accepted Answer

Operating profit of Charcoal Barbecue = Sales revenue - Total cost
Given, 
Sales revenue of Charcoal Barbecue = $220,000
Total cost of Charcoal Barbecue = $187,000
Hence, 
Operating profit of Charcoal Barbecue = $220,000 - $187,000 = $33,000
If the sales price increases by 20%, the new sales revenue of Charcoal Barbecue = 1.2 x $220,000 = $264,000
Total cost remains same as before, i.e., $187,000
Hence, 
New operating profit of Charcoal Barbecue = $264,000 - $187,000 = $77,000
Total operating profit = Operating profit of Gas Grill + Operating profit of Charcoal Barbecue
= $110,000 + $77,000 = $187,000
Therefore, the operating profit would be $187,000 if the Charcoal Barbecue sales price increases 20 percent. The correct answer is option C.

Exhibit 6-5 Estrada Incorporated Produces Two Different Products with the Following

Exhibit 6-5
Estrada Incorporated Produces Two Different Products with the Following