Charlie Shine has written a self-improvement book.The following are its pricing and cost details: $$\begin{array} { l c }
\text { Selling price } & \$ 18.00 \text { per book } \
\text { Variable cost per unit: } & \
\text { Production } & \$ 3.50 \
\text { Selling \& administrative } & 1.90 \
\text { Fixed costs: } & \
\text { Production } & \$ 33,600 \text { per year } \
\text { Selling \& administrative } & 15,540 \text { per year }
\end{array}$$ Charlie Shine is currently selling 5,200 books per year.What impact would a 22% increase in sales have on profit?

Question

Charlie Shine has written a self-improvement book.The following are its pricing and cost details: $$\begin{array} { l c } 
\text { Selling price } & \$ 18.00 \text { per book } \
\text { Variable cost per unit: } & \
\text { Production } & \$ 3.50 \
\text { Selling \& administrative } & 1.90 \
\text { Fixed costs: } & \
\text { Production } & \$ 33,600 \text { per year } \
\text { Selling \& administrative } & 15,540 \text { per year }
\end{array}$$ Charlie Shine is currently selling 5,200 books per year.What impact would a 22% increase in sales have on profit?

Quizplus · Accepted Answer

The profit would increase by $14,414. The profit is calculated as the difference between the revenue and the total cost. The revenue is calculated as the selling price multiplied by the number of books sold. The total cost is calculated as the sum of the variable cost per unit and the fixed costs. The variable cost per unit is calculated as the sum of the production cost per unit and the selling and administrative cost per unit. The fixed costs are the production fixed cost and the selling and administrative fixed cost. The profit is calculated as follows:Profit = Revenue - Total CostProfit = (Selling price per book * Number of books sold) - (Variable cost per unit * Number of books sold + Fixed costs)Profit = ($18.00 * 5,200) - (($3.50 + $1.90) * 5,200 + $33,600 + $15,540)Profit = $93,600 - $104,180Profit = -$10,580If sales increase by 22%, the number of books sold will increase to 5,200 * 1.22 = 6,344. The profit will then be calculated as follows:Profit = ($18.00 * 6,344) - (($3.50 + $1.90) * 6,344 + $33,600 + $15,540)Profit = $114,192 - $128,596Profit = -$14,414Therefore, the profit would increase by $14,414.

Charlie Shine Has Written a Self-Improvement Book Charlie Shine Is Currently Selling 5,200 Books Per Year