Question

Hammer Time Company sells hammers that it purchases at a cost of $5. Hammer Time sells the hammers for $15. Last year, it sold 12,000 hammers. The company estimates that it can sell 5,000 more hammers than last year if it decreases the selling price to $10 per hammer. What is the budgeted sales revenue if Hammer Time implements the decrease in selling price?

Answer 1

The sales revenue would be 170,000 if Hammer Time implements the decrease in selling price.

This would generate a decrease of $10,000 in the sales revenue

Step-by-step explanation:

Understanding the way sales revenue is generated:

`Units Sold * Unit Price = $Sales Revenue`

If the selling price drops to $10

and units sold increase by 5,000

`(12,000 + 5,000) * ( 15 - 5 ) = 17,000 * 10 = 170,000`

Comparing with the previous year:

`12,000 * 15 = 180,000`

This policy decrease the sales revenue which makes the business less profitable.