Chelonia Ltd Manufactures Small Robot Toys

Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Spunkie, which is a solar-powered robot jellyfish. Initially, Chelonia Ltd plans to sell each unit of Spunkie for $95, with an expectation that 2500 units can be sold. The variable cost per unit is $30. The management accountant at Chelonia Ltd is exploring the idea of making some modification to Spunkie which will cost $2 per unit. This modification can allow them to increase the price to $100. This however will lower the demand to 2000 units. Should Chelonia Ltd reduce the price of Spunkie?

A) Yes, as the modified model will increase per unit contribution margin by $3.
B) Yes, as the modified model will increase both the sales revenue and the contribution margin.
C) No, while the modified model will increase the contribution margin per unit, the lower sales volume results in a net decrease in profit.
D) No, while the modified model will increase sales revenue, the lower contribution margin per unit will result in lower overall net profit.