Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car.Annual fixed costs are $7,000.How much will profit increase if 600 more units are sold?

Question

Quizplus · Accepted Answer

First, calculate the current profit per unit:

Profit = Price - Variable cost 
Profit = $12 - $5 = $7

Next, calculate the current total profit:

Total profit = (Profit per unit x Number of units) - Fixed costs 
Total profit = ($7 x N) - $7,000

To find out how much profit will increase if 600 more units are sold, we need to calculate the new total profit when N is increased by 600:

New total profit = (Profit per unit x New number of units) - Fixed costs 
New total profit = ($7 x (N + 600)) - $7,000

Now we can calculate the increase in profit:

Increase in profit = New total profit - Current total profit 
Increase in profit = ($7 x (N + 600)) - $7,000 - (($7 x N) - $7,000) 
Increase in profit = $4,200

Therefore, profit will increase by $4,200 if 600 more units are sold. The answer is B.

Rogers Racers Makes Toy Race Cars That Sell for $12