Use the information below to answer the following questions.
Sales Extraordinaire sells one particular photo frame. It estimates that it can sell as many frames as it produces.
Sales price per unit $5.00
Variable cost per unit $2.00
Fixed costs per annum $9,000
-Refer to the table above. Increasing the sales price to $6.00 and having a sales volume of 3,000 photo frames would result in:

Question

Use the information below to answer the following questions.
Sales Extraordinaire sells one particular photo frame. It estimates that it can sell as many frames as it produces. 
Sales price per unit $5.00
Variable cost per unit $2.00
Fixed costs per annum $9,000
-Refer to the table above. Increasing the sales price to $6.00 and having a sales volume of 3,000 photo frames would result in:

Quizplus · Accepted Answer

First, let's calculate the contribution margin per unit:

Sales price per unit - Variable cost per unit = $5.00 - $2.00 = $3.00

This means that for each unit sold, $3.00 will contribute towards covering the fixed costs and then generating a profit.

At a sales volume of 3,000 units, the total contribution margin would be:

3,000 units x $3 contribution margin per unit = $9,000

This is equal to the fixed costs, so the company would break even.

However, if the sales price is increased to $6.00 per unit, the new contribution margin per unit would be:

$6.00 - $2.00 = $4.00

Therefore, the new total contribution margin at a sales volume of 3,000 units would be:

3,000 units x $4 contribution margin per unit = $12,000

This is $3,000 more than the fixed costs, which means the company would generate a profit of $3,000.

Therefore, the best choice is C, a profit of $3,000.

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