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Makovka662 [10]
3 years ago
13

Morgan Technologies sells a single product at $30 per unit. The firm's most recent income statement revealed unit sales of 80,00

0, variable costs of $720,000, and fixed costs of $810,000. If a $6 drop in selling price will boost unit sales volume by 20%, the company will experience:
Business
1 answer:
Ymorist [56]3 years ago
6 0

Answer:

$240,000 drop in profits.

Explanation:

The company's variable cost per unit is:

VC = \frac{720,000}{80,000} =\$9/unit

Initially, with a sales volume of n = 80,000 units at $30 each, the company's profit was:

P_1=(price -VC)*n-FC\\P_1 = (\$30-\$9)*80,000-\$810,000\\P_1=\$870,000

After price drops to $24 per unit, and sales increase by 20%, the profit is:

P_2=(price -VC)*n_1*1.2-FC\\P_2 = (\$24-\$9)*80,000*1.2-\$810,000\\P_2=\$630,000

The change in profit is:

\Delta P = P_2-P_1\\\Delta P =\$870,000-\$630,000\\\Delta P =\$240,000

The company will experience a $240,000 drop in profits.

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