Shareef’s Window Company is in the process of preparing a production cost budget

Question

Shareef’s Window Company is in the process of preparing a production cost budget for August. Actual costs in July for 120 windows were:
Materials cost $4,800
Labor Cost 3,000
Rent 1,500
Depreciation 2,500
Other fixed costs 3,200
Total $15,000
The company is currently producing and selling 144 windows annually and each window is sold for $140.00. The company is considering lowering the price to $124.00 for which mgmt. estimates this will increase sales to 200 windows. Materials and labor are the only variable costs. Under what situation should the company lower the price of its windows?
a. If total revenue exceeds total costs under the new pricing
b. If incremental revenue exceeds the old revenue
c. If incremental profit is a positive number
d. If incremental costs decrease

Explanation / Answer

Shareef’s Window Company is in the process of preparing a production cost budget for August. Actual costs in July for 120 windows were: Materials cost $4,800 Labor Cost 3,000 Rent 1,500 Depreciation 2,500 Other fixed costs 3,200 Total $15,000 The company is currently producing and selling 144 windows annually and each window is sold for $140.00. The company is considering lowering the price to $124.00 for which mgmt. estimates this will increase sales to 200 windows. Materials and labor are the only variable costs. Under what situation should the company lower the price of its windows? a. If total revenue exceeds total costs under the new pricing

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