A company that manufactures monitors has fixed costs of $84,500 per annum. The variable costs are 32% of sales and the profit is $58,500. When the selling price was reduced by 15%, the sales volume increased by 20%.
a. What was the original sales revenue? $0.00 Round to the nearest cent
b. What were the original variable costs? $0.00 Round to the nearest cent c.
What is the new sales revenue? $0.00 Round to the nearest cent d. What are the new variable costs? $0.00 Round to the nearest cent
e. What is the amount of change in net income? $0.00 Round to the nearest cent. Use a negative sign to represent a loss
In the dynamic landscape of business, pricing strategies play a crucial role in determining a company’s financial health and profitability. This essay explores the effects of a 15% reduction in selling price on a monitor manufacturing company’s financials, considering changes in sales volume, revenue, variable costs, and net income.
The company in focus has a fixed cost of $84,500 per year. Variable costs account for 32% of sales, and the company’s profit stands at $58,500. The intriguing aspect here is the impact of a 15% reduction in the selling price, which led to a remarkable 20% increase in sales volume.
Let’s denote the original sales revenue as ‘S’. We are given that the profit is $58,500, which can be expressed as:
Profit = Sales Revenue – Total Costs $58,500 = S – (Fixed Costs + Variable Costs)
Given that fixed costs are $84,500 and variable costs are 32% of sales, we can write the equation as:
$58,500 = S – ($84,500 + 0.32S)
Solving for S:
$58,500 = 0.68S – $84,500 0.68S = $143,000 S = $143,000 / 0.68 ≈ $210,294.12
Therefore, the original sales revenue was approximately $210,294.12.
Original variable costs can be calculated using the equation for variable costs:
Variable Costs = 0.32 * Original Sales Revenue Variable Costs = 0.32 * $210,294.12 ≈ $67,294.12
With a 15% reduction in the selling price and a subsequent 20% increase in sales volume, the new sales revenue can be calculated by applying these changes to the original sales revenue:
New Sales Revenue = Original Sales Revenue * (1 – 0.15) * (1 + 0.20) New Sales Revenue = $210,294.12 * 0.85 * 1.20 ≈ $179,760.47
The new variable costs can be calculated in the same manner as the original variable costs, using the new sales revenue:
New Variable Costs = 0.32 * New Sales Revenue New Variable Costs = 0.32 * $179,760.47 ≈ $57,552.15
Net income is the difference between revenue and total costs:
Original Net Income = Original Sales Revenue – (Fixed Costs + Original Variable Costs) Original Net Income = $210,294.12 – ($84,500 + $67,294.12) ≈ $58,500
New Net Income = New Sales Revenue – (Fixed Costs + New Variable Costs) New Net Income = $179,760.47 – ($84,500 + $57,552.15) ≈ $37,708.32
Change in Net Income = New Net Income – Original Net Income Change in Net Income = $37,708.32 – $58,500 ≈ -$20,791.68
Conclusion In conclusion, the analysis of the monitor manufacturing company’s financials reveals that the 15% reduction in the selling price, coupled with a 20% increase in sales volume, led to a significant change in its financial landscape. The original sales revenue, variable costs, new sales revenue, new variable costs, and the change in net income have been calculated and analyzed. It is evident that the company experienced a decrease in net income of approximately -$20,791.68, showcasing the intricate interplay between pricing strategies, sales volume, and overall profitability in the business realm.
As a renowned provider of the best writing services, we have selected unique features which we offer to our customers as their guarantees that will make your user experience stress-free.
Unlike other companies, our money-back guarantee ensures the safety of our customers' money. For whatever reason, the customer may request a refund; our support team assesses the ground on which the refund is requested and processes it instantly. However, our customers are lucky as they have the least chances to experience this as we are always prepared to serve you with the best.
Plagiarism is the worst academic offense that is highly punishable by all educational institutions. It's for this reason that Peachy Tutors does not condone any plagiarism. We use advanced plagiarism detection software that ensures there are no chances of similarity on your papers.
Sometimes your professor may be a little bit stubborn and needs some changes made on your paper, or you might need some customization done. All at your service, we will work on your revision till you are satisfied with the quality of work. All for Free!
We take our client's confidentiality as our highest priority; thus, we never share our client's information with third parties. Our company uses the standard encryption technology to store data and only uses trusted payment gateways.
Anytime you order your paper with us, be assured of the paper quality. Our tutors are highly skilled in researching and writing quality content that is relevant to the paper instructions and presented professionally. This makes us the best in the industry as our tutors can handle any type of paper despite its complexity.
Recent Comments