A company has provided the following data:
$$\begin{array} { | l | r | l | }
\hline \text { Sales } & 3,000 & \text { Units } \
\hline \text { Sales price } & \$ 70 & \text { per unit } \
\hline \text { Variable cost } & \$ 50 & \text { per unit } \
\hline \text { Fixed cost } & \$ 25,000 & \
\hline
\end{array}$$
If the sales volume decreases by 25%,the variable cost per unit increases by 15%,and all other factors remain the same,operating profit will:

A) decrease by $31,875.
B) decrease by $15,000.
C) increase by $20,625.
D) decrease by $3,125.

Question

A company has provided the following data:
$$\begin{array} { | l | r | l | } 
\hline \text { Sales } & 3,000 & \text { Units } \
\hline \text { Sales price } & \$ 70 & \text { per unit } \
\hline \text { Variable cost } & \$ 50 & \text { per unit } \
\hline \text { Fixed cost } & \$ 25,000 & \
\hline
\end{array}$$
 If the sales volume decreases by 25%,the variable cost per unit increases by 15%,and all other factors remain the same,operating profit will:

A) decrease by $31,875.
B) decrease by $15,000.
C) increase by $20,625.
D) decrease by $3,125.

Quizplus · Accepted Answer

The new sales volume is 2,250 units (3,000 units - 25%). The new variable cost per unit is $57.50 ($50 + 15%). Total sales revenue is $157,500 (2,250 units x $70). Total variable cost is $129,375 (2,250 units x $57.50). Contribution margin is $28,125 ($157,500 - $129,375). Subtracting fixed costs of $25,000 gives an operating profit of $3,125. The original profit was $35,000, so the decrease is $31,875.

A Company Has Provided the Following Data If the Sales Volume Decreases by 25%,the Variable Cost Per