Knoll,Inc.currently sells 15,000 units a month for $50 each,has variable costs of $20 per unit,and fixed costs of $300,000.Knoll is considering increasing the price of its units to $60 per unit.This will not affect costs,but demand is expected to drop 20%.Should Knoll increase the cost of its product?
A)Yes;profit will increase $30,000.
B)Yes,profit will increase $150,000.
C)No,profit will decrease $150,000.
D)No,profit will decrease $30,000.

Question

Quizplus · Accepted Answer

If the price is increased to $60, demand will drop to 12,000 units (80% of 15,000). Revenue will be $720,000 (12,000 units x $60). Variable costs will be $240,000 (12,000 units x $20). Profit will be $180,000 ($720,000 - $240,000 - $300,000). Current profit is $150,000 ($750,000 - $300,000 - $300,000). Profit increases by $30,000 ($180,000 - $150,000).

Knoll,IncCurrently Sells 15,000 Units a Month for $50 Each,has Variable