Question

Sugar Corp has a selling price of $25, variable costs of $10 per unit, and fixed costs of $30,000. Maple expects profit of $305,000 at its anticipated level of production. If Sugar sells 5,500 units more than expected, how much higher will its profits be

Answer 1

Answer:

$82,500

Explanation:

each unit that Sugar sells will increase the company's profit by $15 = selling price - variable costs

if the company sells 5,500 units more than expected, its net income will be $15 x 5,500 = $82,500 more

The company expected to sell ⇒ ($30,000 + $305,000) / $15 = 22,333.33 ≈ 22,334 units

                                 estimated sales                    actual sales

total units sold             22,334                                  27,834

total revenue               $558,350                             $695,850

variable costs             ($223,340)                            ($278,340)          

gross profit                  $335,010                              $417,510

fixed costs                   ($30,000)                              ($30,000)          

net profit                      $305,010                              $387,510

Answer 2

Answer:

Profits will be $22.495 higher.

Explanation:

Profit is the difference between sales and cost

Profit= price* sales -((Variable cost * sales) +Fixed cost)

First we have to get the sales when we have $305,000 of profit.

Profit -Fixed cost= price* sales -(Variable cost * sales)

Profit -Fixed cost= (price -Variable cost) * sales

(Profit -Fixed cost)/(price -Variable cost) =  sales

Sales=(Profit -Fixed cost)/(price -Variable cost)

Sales=(305,000 -30,000)/(25 -10)

Sales=275,000/15=18.333

If Sugar sells 5,500 units more than expected

Then, new sales are:

Sales=18.333+5,500=23.833

Profit= price* sales -((Variable cost * sales) +Fixed cost)

Profit²= 25* 23833 -((10 * 23833) +30000) =327.495‬

Improvement= Profit -Profit²=$305,000-327.495‬= $22.495