Riven Corporation has a single product whose selling price is $10. At an expected sales level of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. The marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. What would be the company's net operating income if the marketing manager's recommendation is adopted?

Question

Quizplus · Accepted Answer

If the selling price is increased by 20%, the new price is $12. With a 10% decrease in unit sales, sales revenue becomes $1,080,000. Variable expenses decrease to $540,000. Net operating income is calculated as $1,080,000 - $540,000 - $300,000 = $240,000.

Riven Corporation Has a Single Product Whose Selling Price Is