Lincoln, Inc. is considering the introduction of a new music player with the following price and cost characteristics:
$$\begin{array} { l c }
\text { Sales price } & \$ 125 \text { each } \
\text { Variable costs } & 75 \text { each } \
\text { Fixed costs } & 180,000 \text { per year }
\end{array}$$
Projected sales are 7,500 units per year.
Required:
(consider each question independent of each other):
(a) What will the operating profit be?
(b) What is the impact on operating profit if the selling price per unit decreases by 15%?
(c) What is the net income if variable costs per unit increase by 15% and Lincoln has a 38% tax rate?

Question

Lincoln, Inc. is considering the introduction of a new music player with the following price and cost characteristics:
 $$\begin{array} { l c } 
\text { Sales price } & \$ 125 \text { each } \
\text { Variable costs } & 75 \text { each } \
\text { Fixed costs } & 180,000 \text { per year }
\end{array}$$ 
Projected sales are 7,500 units per year.
Required:
(consider each question independent of each other):
(a) What will the operating profit be?
(b) What is the impact on operating profit if the selling price per unit decreases by 15%?
(c) What is the net income if variable costs per unit increase by 15% and Lincoln has a 38% tax rate?

Quizplus · Accepted Answer

The Answer of Lincoln, Inc. is considering the introduction of a new music player with the following price and cost characteristics:
 $$\begin{array} { l c } 
\text { Sales price } & \$ 125 \text { each } \
\text { Variable costs } & 75 \text { each } \
\text { Fixed costs } & 180,000 \text { per year }
\end{array}$$ 
Projected sales are 7,500 units per year.
Required:
(consider each question independent of each other):
(a) What will the operating profit be?
(b) What is the impact on operating profit if the selling price per unit decreases by 15%?
(c) What is the net income if variable costs per unit increase by 15% and Lincoln has a 38% tax rate?

Lincoln, Inc Projected Sales Are 7,500 Units Per Year