Reference no: EM132203289

PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product B. Fixed costs are $800,000 per annum.

The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:

Selling price of $48

Demand Probability

100,000 units 0.4

120,000 units 0.6

The estimated variable costs per unit at either of the higher levels of demand and the probabilities of them occurring are as follows:

Variable cost (per unit) probability

$21 0.25

$19 0.75

The level of demand and the variable cost per unit are independent of each other. Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48