Question

Crown Company produces and sells two products. The following monthly data are provided:

Slicer Chopper
Unit selling price $ 10 $ 15
Variable manufacturing costs 6 9
Variable selling and administrative costs 1 1
Estimate unit sales per month 280 420
The break-even point for the current sales mix is 360 units (144 Slicer models and 216 Chopper models). What would be the impact on profit if 360 units are sold but 145 Slicer models are sold instead of 144?
A. $3 decrease
B. $5 increase
C. $2 decrease

Answer 1

C. $2 decrease

Step-by-step explanation:

The impact on profit, in this situation, is given by the difference in profit from selling an extra Slicer instead of a Chopper. This can be done by subtracting the contribution margin of a Slicer by the contribution margin of a Chopper.

Contribution margin is the difference between the selling price and the variable manufacturing price. The impact on profit would be:

`\Delta P= CM_S-CM_C\\\Delta P = (\$10-\$6)-(\$15-9)\\\Delta P=-\$2`

Therefore, the impact on profit if 360 units are sold but 145 Slicer models are sold instead of 144 would be a $2 decrease.