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

 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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