Mod Clothiers makes women's clothes. It costs $28 000 to produce 5000 pairs of polka-dot polyester pants. They have been unable to sell the pants at their usual price of $50.00. The company is evaluating two alternatives. They could sell the pants 'as is' for a total of $15 000 or they could modify the pants at a cost of $3000 and sell them for a total of $20 000.
What would be the effect on profit of modifying the pants and selling them as opposed to selling 'as is'?

Question

Quizplus · Accepted Answer

Selling 'as is' would result in a revenue of $15,000. Modifying and selling would result in a revenue of $20,000 but with an additional cost of $3,000. The net increase in revenue after modification costs is $2,000 ($20,000 - $15,000 - $3,000).

Mod Clothiers Makes Women's Clothes