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Warner Clothing isconsidering the introduction of a new baseball cap for sales bylocal vendors....Warner...

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Accounting

Warner Clothing isconsidering the introduction of a new baseball cap for sales bylocal vendors. The company has collected the following price andcost characteristics:

Sales price$15per unit
Variablecosts3per unit
Fixed costs42,000per month


Assume that the company plans to sell 5,000 units per month.

If 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?

Answer & Explanation Solved by verified expert
4.0 Ratings (634 Votes)

Profit for the year will go UP by $2,700

Working

Current Proposed Change
Units 5000 5000
Sales price $                15.00 $                15.00
Variable cost $                  3.00 $                  3.30
Fixed cost $       42,000.00 $       37,800.00
Sales revenue $       75,000.00 $       75,000.00
Variable costContribution margin $       15,000.00 $       16,500.00
Contribution margin $       60,000.00 $       58,500.00
Fixed cost $       42,000.00 $       37,800.00
Operating income $       18,000.00 $       20,700.00 $          2,700.00

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Transcribed Image Text

In: AccountingWarner Clothing isconsidering the introduction of a new baseball cap for sales bylocal vendors....Warner Clothing isconsidering the introduction of a new baseball cap for sales bylocal vendors. The company has collected the following price andcost characteristics:Sales price$15per unitVariablecosts3per unitFixed costs42,000per monthAssume that the company plans to sell 5,000 units per month.If 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?

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