The following information pertains to the Ewing Company's three products: $\begin{array}{lrrrr}
& \underline{\text { D }}&\underline{E} &\underline{F} \
\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\
\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \
\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \
\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30
\end{array}$

-Assume that the selling price of product F is increased to $8.25 with a reduction in monthly sales to 400 units.What will be the effect on monthly profits?

Question

The following information pertains to the Ewing Company's three products: $\begin{array}{lrrrr}
& \underline{\text { D }}&\underline{E} &\underline{F} \
\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\
\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \
\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \
\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30
\end{array}$

-Assume that the selling price of product F is increased to $8.25 with a reduction in monthly sales to 400 units.What will be the effect on monthly profits?

Quizplus · Accepted Answer

Before the price increase, product F's contribution to monthly profits is -0.30 * 800 = -$240. After the price increase to $8.25 with sales of 400 units, the new variable cost per unit remains $7.80, leading to a new unit contribution margin of $8.25 - $7.80 = $0.45. The contribution to monthly profits becomes 0.45 * 400 = $180. The change in monthly profits is $180 - (-$240) = $420 increase.

The Following Information Pertains to the Ewing Company's Three Products