Question

Loren Company's single product has a selling price of $15 per unit. Last year the company...

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net operating income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net operating income would:

increase by $45,000

increase by $37,500

increase by $7,500

increase by $28,500
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Homework Answers

Answer #1
Answer is Increase by 28500
Explanation:
Total sales of last year
Variable cost 180000
Fixed cost 90000
Net operating income 30000
Ssales 300000
Divide: Sales price 15
Sales units 20000
Revised:
Sales units: 20000-10% = 18000 units
Selling price: 15+15% = 17.25
Variable cost per unit (180000/20000): $ 9
Revised contribution margi per unit: 17.25-9 = 8.25
Contribution earned: 18000*8.25 148500
Less; fixed cost 90000
Net income 58500
Last year income 30000
Increase 28500
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