In 2017, Sunny Electronics expects to sell 100,000 3-D television sets for an average price of $1,000. Expected production costs are $600 per unit. In 2018, volume is expected to increase by 10%, while inflation will increase both the sales price and the cost per unit by 3%. In nominal dollars, expected gross profit for 2018 is
A) $40 million.
B) $45.32 million.
C) $48.20 million.
D) $50 million.

Question

Quizplus · Accepted Answer

For 2017, the gross profit per unit = Sales price per unit - Production cost per unit = $1,000 - $600 = $400. The total gross profit for 2017 = 100,000 units * $400 = $40 million. For 2018, the sales volume increases by 10% to 110,000 units. The sales price and cost per unit both increase by 3%, making the new sales price $1,030 (=$1,000 * 1.03) and the new cost per unit $618 (=$600 * 1.03). The gross profit per unit for 2018 = $1,030 - $618 = $412. The total gross profit for 2018 = 110,000 units * $412 = $45.32 million.

In 2017, Sunny Electronics Expects to Sell 100,000 3-D Television