Herrell Corporation manufactures numerous products, one of which is called Delta11. The company has provided the following data about this product: Management is considering increasing the price of Delta11 by 5%, from $29.00 to $30.45. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 110,000 units to 99,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Delta11 earn at a price of $30.45 if this sales forecast is correct?

Question

Herrell Corporation manufactures numerous products, one of which is called Delta11. The company has provided the following data about this product:  Management is considering increasing the price of Delta11 by 5%, from $29.00 to $30.45. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 110,000 units to 99,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Delta11 earn at a price of $30.45 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($30.45 per unit − $19.00 per unit) × 99,000 units − $1,010,000
Profit = ($11.45 per unit) × 99,000 units − $1,010,000
Profit = $1,133,550 − $1,010,000 = $123,550

Herrell Corporation Manufactures Numerous Products, One of Which Is Called