Algood Corporation manufactures numerous products, one of which is called Omicron09. The company has provided the following data about this product:
Required:a. What net operating income is the company earning now on its sales of Omicron09?
b. Management is considering decreasing the price of Omicron09 by 5%, from $19.00 to $18.05. The company's marketing managers estimate that this price reduction would increase unit sales by 15%, from 100,000 units to 115,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will Omicron09 earn at a price of $18.05 if this sales forecast is correct?
c. Assuming that the total traceable fixed expense does not change, how many units of Omicron09 would Algood need to sell at a price of $18.05 to earn the same net operating income that it currently earns at a price of $19.00? (Round your answer up to the nearest whole number.)

Question

Algood Corporation manufactures numerous products, one of which is called Omicron09. The company has provided the following data about this product:

Required:a. What net operating income is the company earning now on its sales of Omicron09?
b. Management is considering decreasing the price of Omicron09 by 5%, from $19.00 to $18.05. The company's marketing managers estimate that this price reduction would increase unit sales by 15%, from 100,000 units to 115,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will Omicron09 earn at a price of $18.05 if this sales forecast is correct?
c. Assuming that the total traceable fixed expense does not change, how many units of Omicron09 would Algood need to sell at a price of $18.05 to earn the same net operating income that it currently earns at a price of $19.00? (Round your answer up to the nearest whole number.)

Oskarsson, Olivia · Accepted Answer

Final Answer :

a.

a. b.The profit at the price of $18.05 per unit is computed as follows:Profit = (Selling price per unit − Variable cost per unit) × Quantity sold − Fixed expensesProfit = ($18.05 per unit − $14.00 per unit) × 115,000 units − $430,000Profit = ($4.05 per unit) × 115,000 units − $430,000Profit = $465,750 − $430,000 = $35,750c.Profit = (Selling price per unit − Variable cost per unit) × Quantity sold − Fixed expenses$70,000 = ($18.05 per unit − $14.00 per unit) × Quantity sold − $430,000$500,000 = ($18.05 per unit − $14.00 per unit) × Quantity sold$500,000 = ($4.05 per unit) × Quantity soldQuantity sold = $500,000 ÷ $4.05 per unit = 123,457 units (rounded up)

b.The profit at the price of $18.05 per unit is computed as follows:Profit = (Selling price per unit − Variable cost per unit) × Quantity sold − Fixed expensesProfit = ($18.05 per unit − $14.00 per unit) × 115,000 units − $430,000Profit = ($4.05 per unit) × 115,000 units − $430,000Profit = $465,750 − $430,000 = $35,750c.Profit = (Selling price per unit − Variable cost per unit) × Quantity sold − Fixed expenses$70,000 = ($18.05 per unit − $14.00 per unit) × Quantity sold − $430,000$500,000 = ($18.05 per unit − $14.00 per unit) × Quantity sold$500,000 = ($4.05 per unit) × Quantity soldQuantity sold = $500,000 ÷ $4.05 per unit = 123,457 units (rounded up)

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