Eastwood Corporation manufactures numerous products, one of which is called Beta96. The company has provided the following data about this product: Management is considering decreasing the price of Beta96 by 8%, from $88.00 to $80.96. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta96 earn at a price of $80.96 if this sales forecast is correct?

Question

Eastwood Corporation manufactures numerous products, one of which is called Beta96. The company has provided the following data about this product:  Management is considering decreasing the price of Beta96 by 8%, from $88.00 to $80.96. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta96 earn at a price of $80.96 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($80.96 per unit − $53.00 per unit) × 66,000 units − $1,980,000
Profit = ($27.96 per unit) × 66,000 units − $1,980,000
Profit = $1,845,360 − $1,980,000 = −$134,640

Eastwood Corporation Manufactures Numerous Products, One of Which Is Called