Question

A company's current profit is $25,000 for a product that sells for $100 and has a unit contribution margin of $65. Fixed costs are $40,000. If the company increases sales by 50 units, total profit will increase by $_____.

a) 2,500
b) 3,250
c) 3,900
d) 4,550

Answer 1

b) 3,250. To find the increase in total profit, calculate the increase in unit contribution and multiply it by the increase in sales. In his case, the increase in total profit would be $3,250.

Step-by-step explanation:

To find the increase in total profit, we need to calculate the increase in unit contribution and then multiply it by the increase in sales.

Unit contribution margin is the difference between the selling price and variable cost per unit. In this case, each unit contributes $65 to the profit.

Since the company wants to increase sales by 50 units, the increase in total profit will be: $65 * 50 = $3,250. Therefore, the correct answer is b) 3,250.