X Company is considering a modification to one of its main products that would m

Question

X Company is considering a modification to one of its main products that would make it more attractive to customers. A market research study costing $7,000 was conducted, and it indicated that the company could increase the price of the product by $2.26 with no decrease in unit sales; the current price is $9.92. Variable costs for the product are $3.82 and will not change as a result of the modification, but additional equipment would have to be rented, increasing fixed costs from $11,760 to $14,880. At what unit sales level would X Company be indifferent between modifying the product and not modifying it?

Explanation / Answer

befor modification, SP = $9.92 VC=3.82 FC=11760

after modification, SP = 412.18 VC= 3.82 FC=14880

The company is indifferent if , (X= Unit Sales level)

=> (9.92 -3.82) X - 11760 = (12.18 - 3.82) X - 14880

=> 2.26 X = 3120

=> Unit Sales level = X = 1380.53 OR 1381 units

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