Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to manufacture latex gloves for the medical community. The new machinery leases for $70,000 annually and can produce 10,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale price of $.10 a pair. Currently, sales are 2,500,000 annually. What impact would a $.01 reduction in variable cost have on overall profit?
A) Increase in profit of $25,000
B) Decrease in profit of $25,000
C) Increase in profit of $200,000
D) Increase in profit of $15,000

Question

Quizplus · Accepted Answer

Reducing the variable cost by $.01 per pair of gloves, from $.03 to $.02, on sales of 2,500,000 pairs annually, would save $25,000 (2,500,000 pairs * $.01 saved per pair), thus increasing the profit by $25,000.

Vandelay Industries Manufactures a Range of Latex Products