Kinsley Corporation manufactures numerous products, one of which is called Kappa-03. The company has provided the following data about this product: Management is considering increasing the price of Kappa-03 by 7%, from $36.00 to $38.52. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 50,000 units to 45,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Kappa-03 earn at a price of $38.52 if this sales forecast is correct?

Question

Kinsley Corporation manufactures numerous products, one of which is called Kappa-03. The company has provided the following data about this product:  Management is considering increasing the price of Kappa-03 by 7%, from $36.00 to $38.52. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 50,000 units to 45,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Kappa-03 earn at a price of $38.52 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($38.52 per unit − $26.00 per unit) × 45,000 units − $470,000
Profit = ($12.52 per unit) × 45,000 units − $470,000
Profit = $563,400 − $470,000 = $93,400

Kinsley Corporation Manufactures Numerous Products, One of Which Is Called