Answer:
Flash City Inc is a company manufacturing small flash drives
Current Situation:
Demand = 78,000 Units
Selling price per unit = $8.50
Cost per unit = $5.80
Operating Profit = 78,000 * ($8.50 – $5.80)
Operating Profit = 78,000 * $2.70
Operating Profit = $210,600
Projected Situation:
Demand = 71,000 Units
Selling price per unit = $9.25
Cost per unit = $5.80
Expected Operating Profit = 71,000 * (9.25 – 5.80)
Expected Operating Profit = 71,000 * 3.45
Expected Operating Profit = $244,950
Recommendation: If the selling price price per unit is increase by 0.75 cent, the Operating Profit to realize on manufacturing of the small flash drive will increase by $34,350 ($244,950 - $210,600) although such increment may have an effect of decrease in demand of the Flash drive in market due to increase in price.
Answer:
The $0.75 price increase will result in higher profits.
Explanation:
Current Demand Projected Demand
Units sold 78,000 units 71,000 units
Selling price $8.50 $9.25
Cost per unit $5.80 $5.80
Contribution margin $2.70 $3.45
Gross profit $210,600 $244,950
The price increase will result in gross profit increasing by $34,350. The decrease in the quantity demanded is offset by a larger increase in the contribution margin per unit.
