Allen Corporation's vice president in charge of marketing believes that every 8% increase in the selling price of one of the company's products would lead to an 11% decrease in the product's total unit sales. The product's absorption costing unit product cost is $10.70. The variable production cost is $1.50 per unit and the variable selling and administrative cost is $4.40 per unit.
-The product's profit-maximizing price according to the formula in the text is closest to:
A)$12.96
B)$4.42
C)$17.37
D)$31.51

Question

Quizplus · Accepted Answer

F1F1F1S1F1F1F10_d = ln(1 + % change in quantity sold)/ln(1 + % change in price) = ln(1 + (-0.11))/ln(1 + (+0.08))= -1.51 Profit-maximizing markup on variable cost = -1/(1 + F1F1F1S1F1F1F10_d)= -1/(1 + (-1.51))= 1.96 Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)F1F1F1S1F1F1F10 Variable cost per unit = (1 + 1.96)F1F1F1S1F1F1F10 ($1.50 + $4.40)= $17.46 (the exact answer,without rounding error,is $17.37)

Allen Corporation's Vice President in Charge of Marketing Believes That