Derby Phones is considering the introduction of a new model ofheadphones with the following price and cost characteristics.
| | | |
| Sales price | $ | 21 | per unit |
| Variable costs | | 9 | per unit |
| Fixed costs | | 26,000 | per month |
|
Assume that the projected number of units sold for the month is6,000. Consider requirements (b), (c), and(d) independently of each other.
Required:
a. What will the operating profit be?
b. What is the impact on operating profit ifthe sales price decreases by 10 percent? Increases by 20percent?
c. What is the impact on operating profit ifvariable costs per unit decrease by 10 percent? Increase by 20percent?
d. Suppose that fixed costs for the year are 10percent lower than projected, and variable costs per unit are 10percent higher than projected. What impact will these cost changeshave on operating profit for the year? Will profit go up? Down? Byhow much?
