Question

Assessment 5: (Algo) Clipper Company sells two types of nail clippers... LO 3-6 Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $10 and has a sales price of $16. The high-end model costs $16 and sales for $24. Fixed costs associated with this product line amount to $60,060. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Assume Clipper Company currently sells 10,500 units of clippers and earns a $26,400 profit. Management believes the profitability can be improved by shifting the sales mix to 60 percent share for the economy line and 40 percent for the high-end line. The company believes it can continue to sell a total of 13,100 under the new sales mix. If management is able to accomplish the shift in sales mix Multiple Choice

please show working and explanation

Answer 1

	Total sales units under new mix	13,100
	Economy oriented - 60%	7,860	(13100*60%)
	High end - 40%	5,240	(13100*40%)
		Economy oriented	High end	Total
a	Number of units to be sold	7,860	5,240	13,100
b	Selling price	$16	$24
c	Variable cost	$10	$16
d	Contribution per unit (b - c)	$6	$8
	Total contribution (a*d)	$47,160	$41,920	$89,080
	Fixed Cost			$60,060
	Profit under new mix			$29,020
	Profit under old mix			$26,400
	Difference - INCREASE IN PROFIT			$2,620
	1st option is correct.

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