Question

What is the profit impact if RBC: (1) cuts its selling price $20 per unit, (2) increases its advertising budget by $15,000 per month, and (3) increases sales from 500 to 650 units per month?

Answer 1

The student is tasked with calculating RBC's profit changes from alterations in unit pricing, advertising budget, and sales volume, applying changes respectively and determining overall profit impact.

Step-by-step explanation:

The student's question involves calculating the profit impact for RBC based on changes in its pricing, advertising budget, and sales volume. Initially, we need to address three different changes:

1. Reducing the selling price by $20 per unit,
2. Increasing the advertising budget by $15,000 per month,
3. Increasing monthly sales from 500 to 650 units.

We can analyze these changes individually before synthesizing them into the overall profit impact for RBC. The revenue impact of reducing the selling price is calculated by multiplying the decrease in price by the new quantity of units sold. Similarly, the cost impact of increasing the advertising budget is a direct addition to the monthly costs. Lastly, the additional sales need to be evaluated in terms of additional revenue minus the costs to produce those extra units. If the incremental revenue from the extra units sold exceeds the incremental costs and the increased advertising expenses, then RBC will experience a profit increase. Otherwise, they'll face a profit decrease.