Warner Clothing is considering the introduction of a new baseball cap for sales
ID: 2338948 • Letter: W
Question
Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics:
Assume that the company plans to sell 5,000 units per month.
If that fixed costs for the year 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 year? Will profit go up? Down? By how much?
Sales price $ 15 per unit Variable costs 3 per unit Fixed costs 42,000 per month
Assume that the company plans to sell 5,000 units per month.
If that fixed costs for the year 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 year? Will profit go up? Down? By how much?
Explanation / Answer
Operating profit at present = 5000*(15-3)-42000= $18000 Revised figures: Variable costs = 3*1.1 = $3.3 Fixed costs = 42000*0.9= $37800 Revised operating profit = 5000*(15-3.3)-37800= $20700 Change in Operating profit = 20700-18000 = $2700 Operating profit will be higher by $2700
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