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notsponge [240]
3 years ago
5

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $1

80,000, fixed expenses of $90,000, and a net operating income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net operating income would:
Business
1 answer:
34kurt3 years ago
4 0

Answer:

If the company applies the changes, income will increase by $28,500.

Explanation:

<u>First, we need to calculate the current number of units sold:</u>

Sales (dollars)= net income + fixed costs + total variable cost

Sales (dollars)= 30,000 + 90,000 + 180,000

Sales (dollars)= $300,000

Number of units= 300,000 / 15= 20,000

<u>Now, the selling price increases by 15%, and the number of units decreased by 10%:</u>

Unitary variable cost= 180,000/20,000= $9

Selling price= 15*1.15= $17.25

Number of units sold= 20,000*0.9= 18,000

Net operating income= 18,000*(17.25 - 9) - 90,000

Net operating income= $58,500

If the company applies the changes, income will increase by $28,500.

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