Starowicz Corporation manufactures numerous products, one of which is called Beta10. The company has provided the following data about this product: Management is considering decreasing the price of Beta10 by 7%, from $12.00 to $11.16. The company's marketing managers estimate that this price reduction would increase unit sales by 15%, from 120,000 units to 138,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta-10 earn at a price of $11.16 if this sales forecast is correct?
A) −$40,800
B) $16,080
C) $379,200
D) $436,080

Question

Starowicz Corporation manufactures numerous products, one of which is called Beta10. The company has provided the following data about this product:  Management is considering decreasing the price of Beta10 by 7%, from $12.00 to $11.16. The company's marketing managers estimate that this price reduction would increase unit sales by 15%, from 120,000 units to 138,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta-10 earn at a price of $11.16 if this sales forecast is correct?
A) −$40,800 
B) $16,080 
C) $379,200 
D) $436,080

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($11.16 per unit − $8.00 per unit) × 138,000 units − $420,000
Profit = ($3.16 per unit) × 138,000 units − $420,000
Profit = $436,080 − $420,000 = $16,080

Starowicz Corporation Manufactures Numerous Products, One of Which Is Called