Riven Corporation has a single product whose selling price is $10. At an expecte

Question

Riven Corporation has a single product whose selling price is $10. At an expected sales level of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. The marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. What would be the company's net operating income if the marketing manager's recommendation is adopted?

$240,000

The answer is the 4th one. I keep getting 1st one. Help is appreciated

$240,000

Explanation / Answer

Present sale in Units = 100,000 ($1,000,000 / 10) Decrease in unit sale = 10% Expected unit sales = 90,000 Expected sales = 90,000 x 12 (10 + 20%) = $1,080,000 Variable cost = 540,000 (90,000 x 6) Expected Contribution = $540,000 (1,080,000 – 540,000) Less Fixed cost = 300,000 Net profit = $240,000 I hope now it is clear to you.

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