Question

Beach Surf Boards is making a decision on whether to add long boards as a new product line to complement its short boards. A recent analysis determined that the average long board can be sold for $300.00 with unit variable costs of $225. Fixed costs are currently $51,000 per month but would be increased to $69,000 if long boards are added. How much is the incremental profit or (loss) if long boards are added and its sales volume is expected to be 250 units?

Answer 1

Answer:

profit increase by 750 dollars

Explanation:

We must base our analisys considering only the loan board associated cost:

contribution per long board:

300 sales price - 225 variable cost = $75

total contribution for 250 units:

250x$75 = 18,750

increase in fixed cost:

69,000 - 51,000 = 18,000

incremental operating profit:

18,750 contribution - 18,000 fixed cost = 750