Question

ony Manufacturing produces a single product that sells for $ 80. Variable costs per unit equal $ 45. The company expects total fixed costs to be $ 83 comma 000 for the next month at the projected sales level of 2 comma 600 units. In an attempt to improve​ performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose that management believes that a 10​% reduction in the selling price will result in a 10​% increase in sales. If this proposed reduction in selling price is implemented​ ________.

Answer 1

It is not convenient to reduce the selling price by 10%.

Step-by-step explanation:

Giving the following information:

Selling price= $ 80.

Variable costs per unit= $ 45.

The total fixed costs= $83,000

Units= 2,600

Suppose that management believes that a 10​% reduction in the selling price will result in a 10​% increase in sales.

New price= 80*0.90= $72

Units= 2,600*1.10= 2,860

We need to determine the effect on income.

First, we calculate the present income:

Income= 2,600*(80-45) - 83,000= $8,000

Now, we can calculate the effect on income:

Effect on income= 2,860*(72 - 45) - 83,000= -$5,780

It is not convenient to reduce the selling price by 10%.