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Derby Phones is considering the introduction of a new model of headphones with the following price and...

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Accounting

Derby Phones isconsidering the introduction of a new model of headphones with thefollowing price and cost characteristics:

Sales price$17per unit
Variablecosts8per unit
Fixed costs20,000per month

Assume that theprojected number of units sold for the month is 6,500. Considerrequirements (b), (c), and (d)independently of each other.

Required:

a.What will the operating profit be?

b.What is the impact on operating profit if the sales price decreasesby 10 percent? Increases by 20 percent? (Do not roundintermediate calculations.)

c.What is the impact on operating profit if variable costs per unitdecrease by 10 percent? Increase by 20 percent? (Do notround intermediate calculations.)

d.Suppose that fixed costs for the year are 10 percent lower thanprojected, and variable costs per unit are 10 percent higher thanprojected. What impact will these cost changes have on operatingprofit for the year? Will profit go up? Down? By how much?(Do not round intermediate calculations.)

Answer & Explanation Solved by verified expert
4.4 Ratings (619 Votes)
Requirement a Derby Phones Income Statement 6500 Units Working Sales Revenue 11050000 6500x17 Less Variable Cost 5200000 6500x8 Contribution Margin 5850000 11050052000 Fixed Cost 2000000 Operating Profit 3850000 Requirement b Operating profit at price of 17 3850000 Decrease in revenue after 10 Decrease in price 650017 1105000 Change in profit die to price decrease 2745000    See Answer
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