Toy City Inc., manufactures a product and is considering raising the price by $40 a unit for the coming year. With a $40 price increase, demand is expected to fall by 2800 units.

Bright Inc., has a capacity to produce 28,800 units. Due to an increase in the electricity costs, there is a sudden spike in demand by 2800 units. If the company adopts peak-load pricing policy and charges a premium of 20% over the current sales price, what is the total contribution on the sale of additional units?
A) $257,600
B) $280,000
C) $537,600
D) $526,400

Question

Toy City Inc., manufactures a product and is considering raising the price by $40 a unit for the coming year. With a $40 price increase, demand is expected to fall by 2800 units.

Bright Inc., has a capacity to produce 28,800 units. Due to an increase in the electricity costs, there is a sudden spike in demand by 2800 units. If the company adopts peak-load pricing policy and charges a premium of 20% over the current sales price, what is the total contribution on the sale of additional units?
A) $257,600 
B) $280,000 
C) $537,600 
D) $526,400

Quizplus · Accepted Answer

Expected selling price = $160 + ($160 × 20%) = $192
Total contribution from sale of additional units = 2800 × ($192 - $100) = $257,600