Question

Heather Hudson makes stuffed teddy bears. Recent information for her business follows: Selling price per bear $ 33.50 Total fixed cost per month 1,470.00 Variable cost per bear 16.50 She sells 410 bears this month. Suppose sales increase by 30 percent next month. Calculate the effect that increase will have on her profit. (Round your intermediate calculations to 2 decimal places. Round your final answer to 1 decimal place. (i.e. .123 should be entered as 12.3%))

Answer 1

Current month

Selling price per unit = $33.50

Variable cost per unit = $16.50

Total fixed cost = $1,470

Number of units sold = 410

Income Statement
Sales ( 410 x 33.50)	13,735
Variable cost ( 410 x 16.50)	-6,765
Contribution margin	6,970
Fixed cost	-1,470
Profit	$5,500

Next month

Increase in sales = 30%

= 410 x 30%

= 123

Number of units sold = 410+123

= 533

Income Statement
Sales ( 533 x 33.50)	17,855.5
Variable cost ( 533 x 16.50)	-8,794.5
Contribution margin	9,061
Fixed cost	-1,470
Profit	$7,591

Increase in profit = 7,591-5,500

= $2,091

Increase in profit in % = Increase in profit / Profit in current month

= 2,091/5,500

= 38.0%

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