Cherry Street Market reported the following information for the sales of their o
ID: 2435681 • Letter: C
Question
Cherry Street Market reported the following information for the sales of their only product, cherries sold by the pint:Sales: Total = $31,500 (Per Unit = $4.50)
Variable expenses: Total = $9,450 (Per Unit = $1.35)
Contribution margin: Total = $22,050 (Per Unit = $3.15)
Total fixed expenses = $13,000
Net operating income = $9,050
Cherry Street would like to increase their selling price by 50 cents per unit, and feel that this will decrease sales volume by 10%. Should Cherry Street increase the price, and what will the effect be on net operating income?
Yes; $3,500 increase
Yes; $945 increase
No; no change
No; $945 decrease
please show work
Explanation / Answer
Yes; $3,500 increase
Yes; $945 increase
No; no change
No; $945 decrease
Units sold at $4.50 per unit = $31,500 / $4.50 = 7,000 pints
After 10% increase units to be sold = 7,000 x 90% = 6,300 pints
Current contribution margin = $4.50 - $1.35 = $3.15
Revised contribution margin = $5.00 - $1.35 = $3.65
Total Contribution $3.65 X 6,300 pints = $22,995
Less : Fixed cost $13,000
Net Revised Income $9,995
Less: Current Net Income $9,050
Increase / (decrease) $945
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