Twisdale Corporation manufactures numerous products, one of which is called Omicron-52. The company has provided the following data about this product: Management is considering decreasing the price of Omicron-52 by 4%, from $42.00 to $40.32. The company's marketing managers estimate that this price reduction would increase unit sales by 5%, from 160,000 units to 168,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Omicron 52 earn at a price of $40.32 if this sales forecast is correct?
A) $2,131,200
B) $61,200
C) $167,760
D) $2,237,760

Question

Twisdale Corporation manufactures numerous products, one of which is called Omicron-52. The company has provided the following data about this product:  Management is considering decreasing the price of Omicron-52 by 4%, from $42.00 to $40.32. The company's marketing managers estimate that this price reduction would increase unit sales by 5%, from 160,000 units to 168,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Omicron 52 earn at a price of $40.32 if this sales forecast is correct?
A) $2,131,200 
B) $61,200 
C) $167,760 
D) $2,237,760

Quizplus · Accepted Answer

Profit = (P − V) × Q − Fixed expenses
Profit = ($40.32 per unit − $27.00 per unit) × 168,000 units − $2,070,000
Profit = ($13.32 per unit) × 168,000 units − $2,070,000
Profit = $2,237,760 − $2,070,000 = $167,760

Twisdale Corporation Manufactures Numerous Products, One of Which Is Called