Palm Corporation\'s current plan is to produce and sell 200,000 units. The total

Question

Palm Corporation's current plan is to produce and sell 200,000 units. The total cost of producing 20,000 nis is $1.650000, which includes $650,000 of fixed costs. The projected selling price is $13.50 per unit. Management is also considering the possibility of lowering the selling price to $12.00 per unit, and management believes that this would increase sales to 250,000 units. Assuming management's projections are correct, what is the incremental income or loss from lowering the selling price to $12.00 per unit? 262,500 income $152,000 loss $40,000 loss $50,000 income None of the above

Explanation / Answer

Answer is $ 50,000 income

Explanation :

Calculation of Current income ($) Sales revenue (200000* $ 13.50) 2700000 Less: Variable cost (200000*5) 1000000 Contribution 1700000 Less :Fixed Cost 650000 Income (A) 1050000 Calculation of Proposed income ($) Sales revenue (250000* $ 12) 3000000 Less: Variable cost (250000*5) 1250000 Contribution 1750000 Less :Fixed Cost 650000 Income (B) 1100000 Incremental Income (B-A) 1100000-1050000 50000

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