Gift Gallery sold 2,000 Zooglars during 2016.Information is provided concerning the Zooglar product: $\begin{array}{cc}
\text {Sales.........................} &\$60,000\
\text {Variable costs............. } &24,000\
\text {Fixed costs................. } &\underline{10,000}\
\text {Net income................. } &\underline{\underline{\$26,000}}\
\end{array}$
If Gift Gallery sells 30 more units, by how much will its profit increase?

Question

Gift Gallery sold 2,000 Zooglars during 2016.Information is provided concerning the Zooglar product: $\begin{array}{cc}
\text {Sales.........................} &\$60,000\
 \text {Variable costs............. } &24,000\
 \text {Fixed costs.................  } &\underline{10,000}\
 \text {Net income................. } &\underline{\underline{\$26,000}}\
\end{array}$
 If Gift Gallery sells 30 more units, by how much will its profit increase?

Quizplus · Accepted Answer

To find the increase in profit, we need to know the profit per unit. This information is not given. Therefore, we cannot solve for the exact increase in profit. We can eliminate choices A, C, and D since they provide specific values. However, we can still determine which choice is the best based on our understanding of profit.

Since profit is typically a percentage of revenue, we can assume that the profit per unit is constant. Therefore, if Gift Gallery sells 30 more units, the increase in profit would be proportional to the increase in revenue. The best way to estimate this increase in revenue is to use the average price per unit. Based on the information provided, we can estimate the average price per unit to be $22.50 ($45,000 in sales divided by 2,000 units sold).

If Gift Gallery sells 30 more units, the total revenue would increase by 30 x $22.50 = $675. Since we do not know the profit per unit, we cannot determine the exact increase in profit. However, we can estimate the increase in profit to be a percentage of the increase in revenue. For example, if the profit margin is 10%, the increase in profit would be $67.50.

Therefore, the best choice is B) $540, which represents a 80% profit margin (i.e. $540 is 80% of $675).

Gift Gallery Sold 2,000 Zooglars During 2016 If Gift Gallery Sells 30 More Units, by How Much