Chruch Corporation manufactures numerous products, one of which is called Tau-42. The company has provided the following data about this product: Management is considering decreasing the price of Tau-42 by 6%, from $64.00 to $60.16. 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 Tau-42 earn at a price of $60.16 if this sales forecast is correct?

Question

Chruch Corporation manufactures numerous products, one of which is called Tau-42. The company has provided the following data about this product:  Management is considering decreasing the price of Tau-42 by 6%, from $64.00 to $60.16. 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 Tau-42 earn at a price of $60.16 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($60.16 per unit − $44.00 per unit) × 66,000 units − $1,120,000
Profit = ($16.16 per unit) × 66,000 units − $1,120,000
Profit = $1,066,560 − $1,120,000 = $(53,440)

Chruch Corporation Manufactures Numerous Products, One of Which Is Called