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A manufacturing company sells one product with a variable cost of $18 per unit. The company knows that the price charged will affect demand. Fixed costs are $275,000 and the following chart represents the estimated demand at various price levels. If sales exceed 50,000 units the company will need to lease additional manufacturing space and equipment at an additional cost of $100,000 per year.

Units Sold Price
25,000 $30
50,000 $28
75,000 $26
100,000 $23

Based on this information which of the following statements is true?

A. Selling the units at $28 will generate a profit of $225,000.

B. Selling the units at $23 will generate a profit of $225,000.

C. Selling the units at $26 will generate a profit of $225,000.

D. Both A and D are correct therefore the company would record the same profit under either pricing option.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M943087

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