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Company produces a single product that sells for $16. Variable (flexible) costs per unit equal $11.20. The company expects the total fixed (capacityminus-related) costs to be $7,200 for the next month at the projected sales level of 20,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
Question 1: Suppose that company's management believes that a 10% reduction in the selling price will result in a 30% increase in sales. If this proposed reduction in selling price is implemented, then:
A. profit will increase by $32,000 in a month.
B. profit will decrease by $32,000 in a month.
C. profit will increase by $12,800 in a month.
D. profit will decrease by $12,800 in a month.
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