Retro Rockers makes vintage rocking chairs. It has the following sales and cost data per unit at current production of 100,000 units: If Retro Rockers was able to increase production by 20% without having to add extra capacity, what amount of profit will the company recognize?

Question

Retro Rockers makes vintage rocking chairs. It has the following sales and cost data per unit at current production of 100,000 units:  If Retro Rockers was able to increase production by 20% without having to add extra capacity, what amount of profit will the company recognize?

Quizplus · Accepted Answer

Sales Revenue - Total Costs = Profit; Sales Revenue = Selling Price per Unit x Expected Sales = [$200.00 x (100,000 units x (1 + 20%)] = $24,000,000; Total Costs = Total Variable Costs + Total Fixed Costs = [{Variable cost per unit x Expected Units, 100,000 units x (1 + 20%)} + (Fixed Cost per Unit x original units, 100,000)] = ($123.50 x 120,000) + (27.30 x 100,000 units) = $14,820,000 + 2,730,000 =$17,550,000; Sales Revenue, $24,000,000 - Total Costs, $17,550,000 = $6,450,000 Profit.

Retro Rockers Makes Vintage Rocking Chairs