To ascertain the impact of a price increase on Loren Company's net income, we need to recalculate revenue and expenses under the new price and sales assumptions, and compare it to the original net income. Without the initial sales volume, an exact answer is not possible.
The student is presented with a scenario involving Loren Company's product pricing and sales, and the impact of a proposed price increase on net income. To determine the effect of the price increase and expected decrease in unit sales on net income, we must first calculate the new selling price and estimate the new quantity sold after the proposed changes. The original selling price is $15 per unit. A 15% price increase would raise the price to $17.25 per unit. If unit sales decrease by 10%, and assuming the original number of units sold (U) is such that $15U - $180,000(variable expenses) - $90,000(fixed expenses) = $30,000(net income), the new quantity sold would be 90% of U. The net income under the new conditions would be $17.25(0.9U) - $180,000 - $90,000. To find the increase in net income, we would compare the original net income of $30,000 to the new net income after adjustments.
In summary, without knowing the original quantity sold (U), it is not possible to give the exact amount by which the net income would increase. However, the method to find the increase in net income due to the proposal involves recalculating revenue and expenses based on the new price and estimated sales volume, and comparing this to the original net income.
Without the original quantity sold (U), the exact increase in net income cannot be calculated. The impact of the sales manager's proposal on net income requires comparison of the new net income against the original.