In 2013,Sunny Electronics expects to sell 100,000 3-D television sets for an average price of $1,000.Expected production costs are $600 per unit.In 2014,volume is expected to increase by 10%,while inflation will increase both the sales price and the cost per unit by 3%.In real dollars,expected gross profit for 2014 is
A)$40 million.
B)$45.32 million.
C)$48.2 0 million.
D)$50 million.

Question

Quizplus · Accepted Answer

In 2014, the volume increases by 10% to 110,000 units. The sales price and cost per unit increase by 3% due to inflation, making the sales price $1,030 and the cost $618. The gross profit per unit in real dollars is $1,030 - $618 = $412. The total gross profit is 110,000 units * $412 = $45.32 million. However, in real dollars (adjusted for inflation), the gross profit remains $40 million, as the inflation adjustment cancels out the nominal increase.

In 2013,Sunny Electronics Expects to Sell 100,000 3-D Television Sets