Eastwood Corporation manufactures numerous products,one of which is called Beta96.The company has provided the following data about this product:
Management is considering decreasing the price of Beta96 by 8%,from $88.00 to $80.96.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 60,000 units to 66,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Beta96 earn at a price of $80.96 if this sales forecast is correct?

Question

Eastwood Corporation manufactures numerous products,one of which is called Beta96.The company has provided the following data about this product:
 Management is considering decreasing the price of Beta96 by 8%,from $88.00 to $80.96.The company's marketing managers estimate that this price reduction would increase unit sales by 10%,from 60,000 units to 66,000 units.Assuming that the total traceable fixed expense does not change,what net operating income will product Beta96 earn at a price of $80.96 if this sales forecast is correct?

Quizplus · Accepted Answer

Profit = (P - V) × Q - Fixed expenses
Profit = ($80.96 per unit - $53.00 per unit) × 66,000 units - $1,980,000
Profit = ($27.96 per unit) × 66,000 units - $1,980,000
Profit = $1,845,360 - $1,980,000 = -$134,640

Eastwood Corporation Manufactures Numerous Products,one of Which Is Called Beta96