Question

Block Island TV currently sells large televisions for​ $380. It has costs of​ $320. A competitor is bringing a new large television to market that will sell for​$360. Management believes it must lower the price to​ $360 to compete in the market for large televisions. Marketing believes that the new price will cause sales to increase by​ 10%, even with a new competitor in the market. Block Island TV sales are currently​ 150,000 televisions per year.

What is the change in operating income if marketing is correct and only the sales price is​ changed?

Answer 1

($2,400,000)

Step-by-step explanation:

The computation of change in operating income is shown below:-

Operating income before = $380 - $320

= $60 per television

Total operating income = Operating income before per television × Television per year

= $60 × 150,000

= $9,000,000

New operating income = $360 - $320) × 165,000

= $40 × 165,000

= $6,600,000

Change in operating income = New operating income - Total operating income

= $6,600,000 - $9,000,000

= ($2,400,000)