Question

14. Fixed costs are unknown. Variable costs are $20 per unit. At current selling price of $50, sales volume is 600 units. If you reduce the price to $46, sales volume will increase to 660 units. How much will the protit change in the short term if you reduce the price to $46? A. decrease by $3,240 B. decrease by S840 C. no change D. increase by $360 E. increase by $1,800

Answer 1

Answer: B. decrease by $840

Explanations:

If sales is 600 units,

Sales [600 units x $50]	$30,000
(Less): Variable costs [600 x $20]	($12,000)
Contribution margin	$18,000

If sales is 660 units,

Sales [660 units x $46]	$30,360
(Less): Variable costs [660 x $20]	($13,200)
Contribution margin	$17,160

Decrease in profit = Contribution margin if sales is 600 units - Contribution margin if sales is 660 units

= $18,000-$17,160

= $840