Question

Question 3 Not yet answered Points out of 1.00 P Flag question Tree Corporation manufactures numerous products, one of which is called Tau 10. The company has provided the following data about this product: Unit Sales Selling Price per unit Variable Cost per unit Fixed Expenses 130,000 $36.00 $21.00 $1,690,000 Management is considering decreasing the price of Tau 10 by 5%, from $36.00 to $34.20. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 130,000 units to 143.000 units. Assuming that the total fixed expense does not change, what net operating income will tau 10 earn at a price of $34.20 if this sales forecast is correct?

Answer 1

Statement Showing Net Operating Income Of Tree Corporation on Existing Sales Price   Amount in $

Particular	Amount
Selling price pu	36
Less: Variable Cost	21
Contribution Per Unit(A)	15
No of Units Sold(B)	130000
Total Operating income	1950000
Less: Fixed Expenses	1690000
Net Operating Income	260000

Statement Showing Net Operating Income Of Tree Corporation on New Sales Price   Amount in $

Particular	Amount
Selling price pu	34.2
Less: Variable Cost	21
Contribution Per Unit(A)	13.2
No of Units Sold(B)	143000
Total operating income	1887600
Less: Fixed Expenses	169000
Net Operating Income	197600

Net Operating Income Earn by Tau 10 at price of 34.2 = $197600 which is lower then Existing price of $36 per unit.