Velim Electronics manufactures electric shavers and is considering decreasing th
ID: 2589659 • Letter: V
Question
Velim Electronics manufactures electric shavers and is considering decreasing the price by
$ 3$3
a unit for the coming year. With a
$ 3$3
price decrease, the unit demand is expected to increase by
3030%,
and a high volume materials discount is expected to decrease the variable costs per unit by
$ 2$2
per unit.
Currently
Projected
Demand
10 comma 00010,000 units
13 comma 00013,000 units
Selling price
$ 50$50
$ 47$47
Variable costs per unit
$ 44$44
$ 42$42
Would you recommend the
$ 3$3
price decrease?
A.
No, because the selling price decreases.
B.
No, because contribution margin per unit increases.
C.
Yes, because demand decreases.
D.
Yes, because operating income increases.
Currently
Projected
Demand
10 comma 00010,000 units
13 comma 00013,000 units
Selling price
$ 50$50
$ 47$47
Variable costs per unit
$ 44$44
$ 42$42
Explanation / Answer
Operating income Currently = 10000(*(50-44) = $60000 Operating income Projected =13000*(47-42) = $65000 Option D Yes, because operating income increases is correct
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