Woodridge Corporation manufactures numerous products, one of which is called Alpha32. The company has provided the following data about this product: Management is considering increasing the price of Alpha32 by 4%, from $99.00 to $102.96. The company's marketing managers estimate that this price hike would decrease unit sales by 5%, from 90,000 units to 85,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha32 earn at a price of $102.96 if this sales forecast is correct?

Question

Woodridge Corporation manufactures numerous products, one of which is called Alpha32. The company has provided the following data about this product:  Management is considering increasing the price of Alpha32 by 4%, from $99.00 to $102.96. The company's marketing managers estimate that this price hike would decrease unit sales by 5%, from 90,000 units to 85,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha32 earn at a price of $102.96 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P − V) × Q - Fixed expenses
Profit = ($102.96 per unit − $78.00 per unit) × 85,500 units − $1,690,000
Profit = ($24.96 per unit) × 85,500 units − $1,690,000
Profit = $2,134,080 − $1,690,000 = $444,080

Woodridge Corporation Manufactures Numerous Products, One of Which Is Called