Albury Enterprises reports year-end information from 2018 as follows:
$$\begin{array} { l r }
\text { Sales ( } 80000 \text { units) } & \$ 640000 \
\text { Cost of goods sold } & \underline { 40000 } \\
\text { Gross margin } & 160000 \
\text { Operating expenses }& \underline { 130000 } \\
\text { Operating expenses } & \$ 30000
\end{array}$$
Albury is developing the 2019 budget.In 2019 the company would like to increase selling prices by 8%,and as a result expects a decrease in sales volume of 10%.All other operating expenses are expected to remain constant.Assume that COGS is a variable cost and that operating expenses are a fixed cost.
-Should Albury increase the selling price in 2019?

Question

Albury Enterprises reports year-end information from 2018 as follows:
 $$\begin{array} { l r } 
\text { Sales ( } 80000 \text {  units) } & \$ 640000 \
\text { Cost of goods sold } & \underline { 40000 } \\
\text { Gross margin }  & 160000 \
\text { Operating expenses }& \underline { 130000 } \\
\text { Operating expenses } & \$ 30000
\end{array}$$
 Albury is developing the 2019 budget.In 2019 the company would like to increase selling prices by 8%,and as a result expects a decrease in sales volume of 10%.All other operating expenses are expected to remain constant.Assume that COGS is a variable cost and that operating expenses are a fixed cost.
-Should Albury increase the selling price in 2019?

Quizplus · Accepted Answer

Increasing the selling price by 8% while expecting a 10% decrease in sales volume results in higher operating profit due to the increase in revenue per unit sold, despite the decrease in volume.

Albury Enterprises Reports Year-End Information from 2018 as Follows Albury Is Developing the 2019 Budget