3-11 CVP analysis (LO 3)
Carr Orthotics Company distributes a specialized ankle supportthat sells for $30. The company’s variable costs are $18 per unit;fixed costs total $360,000 per year.
Required
a. If sales increase by$39,000 per year, by how much should operating income increase?
b. Last year, Carr sold 32,000ankle supports. The company’s marketing manager is convinced that a10% reduction in the sales price, combined with a $50,000 increasein advertising, will result in a 25% increase in sales volume overlast year. Should Carr implement the price reduction? Why or whynot?
