Question

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75minuscent price​ increase, demand is expected to fall by​ 7,000 units. Current Projected Demand 75 comma 000 units 68 comma 000 units Selling price $ 8.75 $ 9.50 Incremental cost per unit $ 4.80 $ 4.80 If the price increase is​ implemented, operating profit is projected to​ ________. A. decrease by $ 5 comma 250 B. increase by $ 5 comma 250 C. increase by $ 23 comma 350 D. decrease by $ 7 comma 000

Answer 1

Answer: C. increase by $ 23 comma 350 . Increase by $23,350.

Step-by-step explanation:

To solve this we will calculate the current Operating profit and then the operating profit after the increase.

Current Operating Profit,

= (Sales - Cost ) * No. Of units

= ( 8.75 - 4.80)* 75,000

= 3.95 * 75,000

= $296,250

Operating Profit after the Increase

= (Sales - Cost ) * No. Of units

= ( 9.50 - 4.80) * 68,000

= 4.7 * 68,000

= $319,600

The difference is,

= $319,600 - $296,250

= $23,350

If the price increase is​ implemented, operating profit is projected to increase by $23,350 so option C is correct.