Final answer:
When product volume at Joe's Ceramics increases by one unit, total revenue increases by $25, total cost increases by the variable cost of $21, and income before tax (profit) increases by $4, which is the contribution margin per unit.
Step-by-step explanation:
When product volume goes up by one unit at Joe's Ceramics, there are specific changes to the financial data. For each additional unit sold, the total revenue increases by the price of the product. In Joe's Ceramics' case, this would be an additional $25. However, it's crucial to note that the increase in revenue also brings an increase in variable costs, which amounts to $21 for each additional unit. Therefore, the total variable cost increases proportionately with the additional unit sold.
Now, looking at income before tax (profit), we can determine this by subtracting the variable cost per unit and the fixed cost from the total revenue. For each additional unit, the income before tax will increase by the contribution margin per unit, which is revenue per unit minus variable cost per unit ($25 - $21 = $4). As the fixed costs do not change with the production volume, the entire contribution margin contributes to the increase in income before tax.
Therefore, the changes in financial measures when product volume goes up by one unit are as follows:
- Total revenue increases by $25.
- Total cost increase by $21 (variable cost), while fixed costs remain unchanged.
- Income before tax increases by $4 (contribution margin per unit).