Question

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.
Current Projected

Demand 79,000 units 72,000 units

Selling price $8.50 $9.25

Incremental cost per unit $5.80 $5.80

If the price increase is implemented, operating profit is projected to ________.

1.
increase by $35,100

2.
decrease by $5,250

3.
increase by $5,250

4.
decrease by $7,000

Answer 1

Answer:

If the price increase is implemented, operating profit is projected to increase by $35,100.

Explanation:

In order to calculate the operating profit is projected to If the price increase is implemented we would need to make the following calculation:

Particulars Current Projected Change

Sale Price 8.5             9.25            0.75

Less: Cost 5.8               5.8                0

Contribution 2.7               3.45           0.75

Units Sold 79,000       72,000 -7.000

Total Contribution 213,300 248,400 35,100

If the price increase is implemented, operating profit is projected to increase by $35,100