Question

Rally Synthesis Inc. manufactures and sells 100 bottles per day. Fixed costs are $22,000 and the variable costs for manufacturing 100 bottles are $30,000. Each bottle is sold for $1,200. How would the daily profit be affected if the daily volume of sales drop by 10%?

Answer 1

Answer:

Rally Synthesis Inc. will experience $9,000 decrease in daily profit.

Explanation:

Contribution Margin = $1,200 - ( $30,000 / 100) = $1,200 - $300 = $900 per unit

Break-even point = $22,000 / $900 = 24.444 unit

Decrease in Sale = 100 x 10% = 10 units

Effect on profit = 10 x $900 = $9,000

So, Rally Synthesis Inc. will experience $9,000 decrease in daily profit if volume of sales drop by 10%.