Frontier Corp.sells units for $50,has unit variable costs of $20,and fixed costs of $300,000.Frontier sells 15,000 units.If sales increase 20%,by how much will profits increase?
A)20%
B)30%
C)60%
D)90%

Question

Quizplus · Accepted Answer

First, let's calculate the current profit:

Total revenue = 15,000 units x $50/unit = $750,000
Total variable costs = 15,000 units x $20/unit = $300,000
Total fixed costs = $300,000

Total costs = $300,000 (variable) + $300,000 (fixed) = $600,000
Total profit = $750,000 - $600,000 = $150,000

Now, let's calculate the new profit if sales increase 20%:

New total revenue = 15,000 units x 1.2 x $50/unit = $900,000
New total variable costs = 15,000 units x 1.2 x $20/unit = $360,000
Total fixed costs = $300,000 (same as before)

New total costs = $360,000 (variable) + $300,000 (fixed) = $660,000
New total profit = $900,000 - $660,000 = $240,000

Profit increase = New total profit - Current total profit = $240,000 - $150,000 = $90,000

Profit increase percentage = ($90,000 / $150,000) x 100% = 60%

Therefore, the answer is (C) 60%.