Gorry Company's management has found that every 7% increase in the selling price of one of the company's products leads to a 11% decrease in the product's total unit sales.The product's absorption costing unit product cost is $13.00.The variable production cost of the product is $4.00 per unit and the variable selling and administrative cost is $5.40 per unit. According to the formula in the text,the product's profit-maximizing price is closest to:
A)$22.41
B)$31.00
C)$23.60
D)$20.06

Question

Quizplus · Accepted Answer

F1F1F1S1F1F1F10_d = ln(1 + % change in quantity sold)/ln(1 + % change in price) = ln(1 + (-0.11))/ln(1 + 0.07)= -1.72 Profit-maximizing markup on variable cost = -1/(1 + F1F1F1S1F1F1F10_d) = -1/(1 + (-1.72))= 1.39 Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)F1F1F1S1F1F1F10 Variable cost per unit = (1 + 1.38)F1F1F1S1F1F1F10 ($4.00 + $5.40)= $22.47 (the exact answer without rounding error is $22.41)

Gorry Company's Management Has Found That Every 7% Increase in the Selling