Question

Gray Fullbuster Inc. manufactures ice Cube Trays. One of the managers is considering raising the current price of ice cube trays $31 per unit by 10%. If this price increase goes through, it is estimated that demand will decrease by 20,000 units per month. Gray currently sells 51,600 units per month, each of which costs $22 in variable costs. Fixed costs are $182,000. Required: What is the current profit?

Answer 1

The current profit for Gray Fullbuster Inc. is calculated by subtracting the total costs from the total revenue. With the given data, their monthly profit is $282,400.

Step-by-step explanation:

To calculate the current profit for Gray Fullbuster Inc., we should first calculate the total revenue and then subtract both the variable and fixed costs.

Current revenue can be computed by multiplying the price per unit by the number of units sold. With a current price of $31 per unit and monthly sales of 51,600 units, the total revenue is:

Total Revenue = Price per Unit × Number of Units Sold = $31 × 51,600 = $1,599,600

Next, we calculate total variable costs by multiplying the variable cost per unit by the number of units sold:

Total Variable Costs = Variable Cost per Unit × Number of Units Sold = $22 × 51,600 = $1,135,200

The fixed costs are given as $182,000, so to determine the profit, we subtract the total costs (variable + fixed) from the total revenue:

Profit = Total Revenue - (Total Variable Costs + Fixed Costs) = $1,599,600 - ($1,135,200 + $182,000) = $1,599,600 - $1,317,200 = $282,400

Therefore, the current profit for Gray Fullbuster Inc. is $282,400 per month.