Pascal Corporation manufactures numerous products, one of which is called Gamma66. The company has provided the following data about this product: Management is considering decreasing the price of Gamma66 by 4%, from $51.00 to $48.96. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 100,000 units to 110,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Gamma66 earn at a price of $48.96 if this sales forecast is correct?
A) $(74,000)
B) $1,645,600
C) $75,600
D) $1,496,000

Question

Pascal Corporation manufactures numerous products, one of which is called Gamma66. The company has provided the following data about this product:  Management is considering decreasing the price of Gamma66 by 4%, from $51.00 to $48.96. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 100,000 units to 110,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Gamma66 earn at a price of $48.96 if this sales forecast is correct?
A) $(74,000) 
B) $1,645,600 
C) $75,600 
D) $1,496,000

Quizplus · Accepted Answer

Profit = (P − V) × Q - Fixed expenses
Profit = ($48.96 per unit − $34.00 per unit) × 110,000 units − $1,570,000
Profit = ($14.96 per unit) × 110,000 units − $1,570,000
Profit = $1,645,600 − $1,570,000 = $75,600

Pascal Corporation Manufactures Numerous Products, One of Which Is Called