Cambridge, Inc., is considering the introduction of a new calculator with the fo
ID: 2569204 • Letter: C
Question
Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:
Assume that the projected number of units sold for the month is 7,500. Consider requirements (2), (3), and (4) independently of each other.
What is the impact on operating profit if the sales price decreases by 10 percent? (Do not round intermediate calculations. Omit the "$" sign in your response.)
What is the impact on operating profit if the sales price increases by 20 percent? (Do not round intermediate calculations. Omit the "$" sign in your response.)
What is the impact on operating profit if variable costs per unit decrease by 10 percent? (Do not round intermediate calculations. Omit the "$" sign in your response.)
What is the impact on operating profit if variable costs per unit increase by 20 percent? (Do not round intermediate calculations. Omit the "$" sign in your response.)
Suppose that fixed costs for the month are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the month? Will profit go up? Down? By how much? (Do not round intermediate calculations. Omit the "$" sign in your response.)
Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:
Explanation / Answer
Operating profit is the earning from main operations of a business. Normally, it is profit before interest (which is a financial nature item) and other items which are either non-recurring or not relating to normal business operatios.
Requirement 1
Total sales value = 7500 units X $ 23 per unit =$ 172,500
Total variable cost = 7500 units X $6 per unit = $ 45,000
Total fixed cost = $ 21,000
Operating profit = sales - variable cost - fixed cost = $106,500
Requirement 2 (a)
New sales value = 7500 units X 23 X 90% = $ 155,250
New operating profit = 155,250-45,000-21,000 = 89,250
Decrease in operating profit = (106,500-89,250) = 17,250
Requirement 2(b)
New sales value = 7500 units X 23 X 120% = 207,000
New operating profit = 207,000-45,000-21,000 = 141,000
Increase in operating profit = (141,000-106,500) = 34,500
Requirememt 3(a)
New variable cost = 7500 units X $6 X 90% = 40,500
New operating profit = 172,500-40,500-21,000 =111,000
Increase in operating profit = 111,000-106,500= 4,500
Requirement 3(b)
New variable cost = 7500 units X 6 X 120% = 54,000
New operating profit = 172,500-54,000-21,000 = 97,500
Decrease in operating profit = 106,500-97,500 = 9,000
Requirement 4
New variable cost = 7500 units X $6 X 110% = 49,500
New Fixed cost = 21,000X 90% = 18,900
Operating profit = 172,500-49,500-18,900 = 104,100
Decrease in operating profit = 106,500-104,100 = 2,400
Notes:
1. In every requirement, parameter which does not change is equal to first situation where sales price is $172,500, variable coat is 45,000 and fixed cost is 21,000
2. All nos are in $
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