Spach Corporation manufactures numerous products, one of which is called Beta68. The company has provided the following data about this product: Management is considering decreasing the price of Beta68 by 5%, from$16.00 to $15.20. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 110,000 units to 121,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta68 earn at a price of $15.20 if this sales forecast is correct?
A) $629,200
B) $572,000
C) ($8,000)
D) $49,200

Question

Spach Corporation manufactures numerous products, one of which is called Beta68. The company has provided the following data about this product:  Management is considering decreasing the price of Beta68 by 5%, from$16.00 to $15.20. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 110,000 units to 121,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta68 earn at a price of $15.20 if this sales forecast is correct?
A) $629,200 
B) $572,000 
C) ($8,000) 
D) $49,200

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($15.20 per unit − $10.00 per unit) × 121,000 units − $580,000
Profit = ($5.20 per unit) × 121,000 units − $580,000
Profit = $629,200 − $580,000 = $49,200

Spach Corporation Manufactures Numerous Products, One of Which Is Called