Shoe Co.has fixed costs of $6 million and unit variable costs of $5 per pair.Suppose a consultant tells Ace it can sell 700,000 pairs of shoes,thus earning a profit of $2.5 million.What potential error is the consultant making?
A) assuming that fixed costs are independent of price
B) assuming that units sold is independent of price
C) assuming that some fixed costs are variable
D) assuming that some variable costs are fixed
E) assuming that variable costs are independent of price

Question

Quizplus · Accepted Answer

The consultant is likely assuming that the number of units sold (700,000 pairs) is independent of the price, which may not be true as demand can be affected by price changes.

Shoe CoHas Fixed Costs of $6 Million and Unit Variable Costs