A company only produces one type of item. For the last fiscal year, the followin

Question

A company only produces one type of item. For the last fiscal year, the following information is available: Variable/moving costs: £468,000 Fixed costs: £936,000 Turnover: £1860,000 Manufactured and sold volume: 52,000 pieces Question: calculate how the company's earnings are affected if: * the price would increase with +20% * and the company would loose-20% of the sales. Answer with £ Hint: calculate the new volume by taking-20% to the current volume. The variable and fixed costs are still the same. Also: 177,600 and 372,384 are wrong answers

Explanation / Answer

Here variable cost = 468,000

FIxed cost = 936,000

Turnover= 1,860.000

sold volume= 52000 pieces

first we find out the earning of company currently =

earning = sales - fixed cost - total variable cost

= 1860000-468,000-936,000

= GBP 456,000

now if we change the price by 20% volume wil also reduce by 20% so

now new volume = 52000*80% = 41,600

new price per volume = 1860000/52000*(1+20%) = 42.92 per piece

so total sales = 41600*42.92 = 1,785,472

new variable cost = 468000/52000*41600 = 374,400

hence new income= 1,785,472-374,400-936,000 = $475,072

hence change in income = 475,072-456000 = GBP 19,072

Hence income will increase by GBP 19,072

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