Wilkes Manufacturing sells one product with a variable unit cost of $18.The company knows that the price charged will affect demand.Fixed costs are $275,000.If sales exceed 50,000 units, the company will need to lease additional manufacturing space and equipment at an additional cost of $100,000 per year.The following chart represents the estimated demand at various price levels: $\begin{array}{rr}\text { Units Dem anded } &\text { Unit Price } \
25,000 & \$ 30 \
50,000 & \$ 28 \
75,000 & \$ 25 \
100,000 & \$ 23
\end{array}$ Based on this information which of the following statements is true?
A)Selling the units at $23 will generate the largest profit.
B)Selling the units at either $23 or $28 will generate a profit of $225,000.
C)Selling the units at either $25 or $28 will generate a profit of $225,000.
D)Selling the units at $28 will generate the largest profit.

Question

Wilkes Manufacturing sells one product with a variable unit cost of $18.The company knows that the price charged will affect demand.Fixed costs are $275,000.If sales exceed 50,000 units, the company will need to lease additional manufacturing space and equipment at an additional cost of $100,000 per year.The following chart represents the estimated demand at various price levels: $\begin{array}{rr}\text { Units Dem anded } &\text { Unit Price }  \
25,000 & \$ 30 \
50,000 & \$ 28 \
75,000 & \$ 25 \
100,000 & \$ 23
\end{array}$ Based on this information which of the following statements is true?
A)Selling the units at $23 will generate the largest profit.
B)Selling the units at either $23 or $28 will generate a profit of $225,000.
C)Selling the units at either $25 or $28 will generate a profit of $225,000.
D)Selling the units at $28 will generate the largest profit.

Quizplus · Accepted Answer

Selling the units at $28 will generate the largest profit because it results in the highest contribution margin per unit and the highest total contribution margin.

Wilkes Manufacturing Sells One Product with a Variable Unit Cost