Velim Electronics manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year.With a $3 price decrease,the unit demand is expected to increase by 25%,and a high volume materials discount is expected to decrease the variable costs per unit by $2 per unit.
$\begin{array}{lll}
& \text { Currently } & \text { Projected } \
\text { Demand } & 50,000 \text { units } & 62,500 \text { units } \
\text { Selling price } & \$ 60 & \$ 57 \
\text { Variable costs per unit } & \$ 52 & \$ 50
\end{array}$
Would you recommend the $3 price decrease?

Question

Velim Electronics manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year.With a $3 price decrease,the unit demand is expected to increase by 25%,and a high volume materials discount is expected to decrease the variable costs per unit by $2 per unit.
$\begin{array}{lll}
 & \text { Currently } & \text { Projected } \
\text { Demand } & 50,000 \text { units } & 62,500 \text { units } \
\text { Selling price } & \$ 60 & \$ 57 \
\text { Variable costs per unit } & \$ 52 & \$ 50
\end{array}$
Would you recommend the $3 price decrease?

Quizplus · Accepted Answer

The price decrease leads to an increase in demand and a reduction in variable costs, resulting in higher total contribution margin and operating income.

Velim Electronics Manufactures Electric Shavers and Is Considering Decreasing the Price