Question

Required information (The following information applies to the questions displayed below.] Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics. $ Sales price Variable costs Fixed costs 12 per unit 4 per unit 46,000 per month Assume that the company plans to sell 8,000 units per month. Consider requirements (b), (c), and (d) independently of each other. Required: a. What will be the operating profit? b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent? c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent? 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What will be the operating profit? Operating profit

Answer 1

a)
		Per unit	number of units	total
	sales revenue	$             12	8000	$       96,000
	Less:
	Variable cost	$               4	8000	$       32,000
	Constriburion margin	$               8	8000	$       64,000
	less:
	fixed cost			$       46,000
	operating profit			$       18,000
b)	Sales Price decrease by 10%
		Per unit	number of units	total
	sales revenue	$             11	8000	$       86,400
	Less:
	Variable cost	$               4	8000	$       32,000
	Constriburion margin	$               7	8000	$       54,400
	less:
	fixed cost			$       46,000
	operating profit			$         8,400
	Impact = $18000-8400 =	$       9,600	Decrease
	Sales price increase by 20%
		Per unit	number of units	total
	sales revenue	$             14	8000	$   1,15,200
	Less:
	Variable cost	$               4	8000	$       32,000
	Constriburion margin	$             10	8000	$       83,200
	less:
	fixed cost			$       46,000
	operating profit			$       37,200
	Impact = $37200-18000 =	$     19,200	Increase
c)	Variable cost decrease by 10%
		Per unit	number of units	total
	sales revenue	$             12	8000	$       96,000
	Less:
	Variable cost	$               4	8000	$       28,800
	Constriburion margin	$               8	8000	$       67,200
	less:
	fixed cost			$       46,000
	operating profit			$       21,200
	Impact = $21200-18000 =	$       3,200	Increase
	Variable cost increase by 20%
		Per unit	number of units	total
	sales revenue	$             12	8000	$       96,000
	Less:
	Variable cost	$               5	8000	$       38,400
	Constriburion margin	$               7	8000	$       57,600
	less:
	fixed cost			$       46,000
	operating profit			$       11,600
	Impact = $18000-11600 =	$       6,400	Decrease
d)		Per unit	number of units	total
	sales revenue	$             12	8000	$       96,000
	Less:
	Variable cost	$               4	8000	$       35,200
	Constriburion margin	$               8	8000	$       60,800
	less:
	fixed cost			$       41,400
	operating profit			$       19,400
	Go up by =$19400-18000	$       1,400