Question

Derby Phones is considering the introduction of a new model of headphones with the following price and cost characteristics:

Sales price	$	23	per unit
Variable costs		6	per unit
Fixed costs		24,000	per month

Assume that the projected number of units sold for the month is 7,000. Consider requirements (b), (c), and (d) independently of each other.

Required:

a. What will the operating profit be?

b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent? (Do not round intermediate calculations.)

c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent? (Do not round intermediate calculations.)

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much? (Do not round intermediate calculations.)

Answer 1

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Contribution Income statement Total Per unit Sales 7000 Units) Varaible Expense Contribution Margin Fixed Expenses Net operating Income Answer: Operating Profit 161000 42000 119000 24000 95000 95000 23 6 Selling price redeced by 10%-23+90-207 Selling price is increased by 20%-23*1.20-27.6 Contribution Income statement Reduce by 10% Sales Varaible Expense Contribution Margin Fixed Expenses Net operating Income Impact on operating Profi Reduced b Increased B 144900 42000 102900 24000 78900 increase by 20% 193200 42000 151200 24000 127200 answers 16100 32200

Contribution Income statement Total Per unit Sales 7000 Units) Varaible Expense Contribution Margin Fixed Expenses Net operating Income Answer: Operating Profit 161000 42000 119000 24000 95000 95000 23 6 Selling price redeced by 10%-23+90-207 Selling price is increased by 20%-23*1.20-27.6 Contribution Income statement Reduce by 10% Sales Varaible Expense Contribution Margin Fixed Expenses Net operating Income Impact on operating Profi Reduced b Increased B 144900 42000 102900 24000 78900 increase by 20% 193200 42000 151200 24000 127200 answers 16100 32200