Question

Derby Phones is considering the introduction of a new model of headphones with the following price and cost characteristics: Sales price Variable costs Fixed costs 15 per unit 7 per unit 27,000 per month Assume that the projected number of units sold for the month is 6.000. Consider requirements (b). (C). and (d) independently of each other. Required: a. What will the operating profit be? Operating profit 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.) Sales price decreases by 10 percent Sales price increases by 20 percent: Operating profit Operating profit 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.) Variable costs per unit decrease by 10 percent Variable costs per unit increase by 20 percent: able costs per unit decrease by 10 percent Operating profit Operating profit Operating profit A by

Answer 1

Ans(a) Operating profit a Gogo units & [ $15 - $7] - $21,000 = $21000 pu (6) If sales price decrease by 10%, sales price will be $1S 90%.] = $13.50 Operating Profuit = 6ooo units [$13.50 - $7] - $27,000 - = $12,000 Operating profit decreases from $21,000 to $ 12,000 if sales price decrease by 10% If sales price o increase by 20%, sales price will be . [dis x 120%] = $18 Operating profit = 6ooo brits [$ 18-67] - $27,000! = $39,000 Operating profit increases from $21,000 to $39,000 I sales price increases by 20%.

c) th variable costs decrease by 10%. bencent variable costs. - p.u will be [$7x90% = $6.30] Operating profit a boog units [$15- $6.30] -$20,000 - $25,200 Operating Profit increases from $2,000 to $25,200 if varickle cost p.v. decreases by 10%.. Il vouable costs increase by 20%. her unit variable costs per unit will be $7 x 120% = $8.4] operating profit - 6000 whits [$1S - $8.40] - $27,000 - $12,600 Operating profit decreases from $2,000 to $12,600 if variable cost er unit increases by 20%. . (c) Required fixed Costs = $27000 x 90% = $24,300 Selling Price pes lenit = 15 Variable cost Per lenit = $7X110% = $7070 Operating Profut = 6000 units [$15 - $7.70 ] - $ 24,300 $19,500_ Alperating profit will go down from $21,000 to "$19, Sos resulting in decrease of amount of $15.00 ( $ 21,005 – $19,500).