Michael Vick has written a self improvement book that has the following cost cha
ID: 2356649 • Letter: M
Question
Michael Vick has written a self improvement book that has the following cost characteristics: Selling Price $16.00 per book Variable cost per unit: Production $4.00 Selling & administrative 2.00 Fixed costs: Production $88,000 per year Selling & administrative 18,000 per year Assume the variable production cost and the price were both cut by $2.00 per unit. Which of the following would change? Breakeven point in units Contribution margin ratio Total fixed costs Contribution margin per unitExplanation / Answer
A) Profit would increase 30%.
B) Profit would increase 100%.
C) Profit would increase $90,000.
D) Profit would increase $44,000. Profit would increase 30%.
It is so simple
First we eliminate options Profit would increase $90,000 and Profit would increase $44,000. Because in the question we don’t have the amount of profit
And remaining two options that is Profit would increase 30% and Profit would increase 100%. In this we eliminate option Profit would increase 100%. By taking some assumption to have better understand
Explanation: -
Example:-
Assume that the current sales 30,000 units have profit of $300,000 (Each unit $10*30000) If 30% sales increase it means 30000*30% = 9000 units so total units is 39000 so the profit is 390,000 ($10*39000)
So we can clearly say that if amount of profit is given then only we Take option C, D and option D is eliminated because in the question it is clearly mentiond that sales increased only 30%
As sales is directly proportionate to profit
So the right option is Profit would increase 30%.