The following information pertains to Dallas Churning Company's three products: Assume that product F is discontinued and the space is used to produce E. Product E's production is increased to 2,200 units per month, but E's selling price of all units of E is reduced to $10.20. Monthly profits will
A) decrease by $2,070.
B) increase by $1,200.
C) increase by $2,640.
D) decrease by $270.

Question

The following information pertains to Dallas Churning Company's three products:  Assume that product F is discontinued and the space is used to produce E. Product E's production is increased to 2,200 units per month, but E's selling price of all units of E is reduced to $10.20. Monthly profits will
A) decrease by $2,070. 
B) increase by $1,200. 
C) increase by $2,640. 
D) decrease by $270.

Quizplus · Accepted Answer

Based on the given information, we can calculate the current monthly profit for each product as follows:

- Product F: Discontinued
- Product G: ($11.80 - $6.70) x 1,500 = $7,200
- Product E: ($14.60 - $9.90) x 1,000 = $4,700

Total monthly profit = $7,200 + $4,700 = $11,900

If product F is discontinued and the space is used to produce E, the new monthly profit for each product would be:

- Product G: ($11.80 - $6.70) x 1,500 = $7,200 (remains the same)
- Product E: ($10.20 - $9.90) x 2,200 = $660
- Product F: Discontinued

Total monthly profit = $7,200 + $660 = $7,860

The change in monthly profit is a decrease of $4,040 ($11,900 - $7,860), which is equivalent to a decrease of $270 per 100 units of product E (i.e. $4,040 / 2,200). Therefore, the answer is D, as monthly profits will decrease by $270.

The Following Information Pertains to Dallas Churning Company's Three Products