Consider the following decision option data: $\begin{array}{lll}&\text { Option \#1 } & \text { Option \#2 } \
\text { Number of units } & 150 & 200 \
\text { Revenue per unit } & \$ 25 & \$ 25 \
\text { Variable cost per unit } & \$ 12 & \$ 12 \
\text { Lost revenue from choosing option } & \{\$ 500\} & \{\$ 4,000\} \
\text { Cost savings from choosing option } & \$ 0 & \$ 1,000 \
\text { Avo idable fixed cost } & \$ 0 & \$ 0
\end{array}$ What is the incremental profit for Option #2?
A)$5,600
B)($2,400)
C)$2,600
D)($400)
E)$1,400

Question

Quizplus · Accepted Answer

To calculate the incremental profit for Option #2 compared to Option #1, we need to consider the differences in revenue, variable costs, lost revenue, and cost savings.Revenue difference: $200 \times \$25 - 150 \times \$25 = \$5,000 - \$3,750 = \$1,250$Variable cost difference: $200 \times \$12 - 150 \times \$12 = \$2,400 - \$1,800 = \$600$Lost revenue difference: $-\$4,000 - (-\$500) = -\$3,500$Cost savings: \$1,000Incremental profit for Option #2 = Revenue difference - Variable cost difference + Lost revenue difference + Cost savings = \$1,250 - \$600 - \$3,500 + \$1,000 = -\$400Therefore, the incremental profit for choosing Option #2 over Option #1 is -\$400, indicating a loss, which corresponds to option D.

Consider the Following Decision Option Data What Is the Incremental Profit for Option #2? A)$5,600 B)($2,400)

Consider the Following Decision Option Data What Is the Incremental Profit for Option #2?
A)$5,600
B)($2,400)