Answer:
The correct answer is;
A $9,000 increase in profits (B)
Explanation:
This question is asking us to compare the net selling prices between selling to the current customers and selling to the car dealership, to determine if an increase or decrease in profit was made.
First of all, we have to calculate the net selling prices to the two group;
To the car dealership
price of 1 tire = $30
total number of tires = 3,000
Therefore total price of sales = 3000 × 30 = $90,000
To the current customers;
price of 1 tire = $45 - $10 rebate = $35
Number of tires = 3000
Therefore total selling price = 35 × 3000 = $105,000
Next, we are told that when they decide to sell to direct customers, the program would cost $24,000. This amount will be removed from the total selling price; Therefore net amount gotten from sales to customers
= $105,000 - $24,000 (cost of program) = $81,000
Now, comparing the prices of the two groups,
Total sale to car dealership = $90,000
Total sales to customers = $81,000
difference = 90,000 - 81,000 = $9,000.
If the company makes a decision to sell to the car dealership, they will make a $9,000 increase in profit (Option B), because the price in selling to the car dealership is higher than that in selling to the direct customers by $9,000.
