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27 March, 00:59

Riven Corporation has a single product whose selling price is $10. At an expected sales level of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. The marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. What would be the company's net operating income if the marketing manager's recommendation is adopted?

a. $132,000b. $290,000c. $180,000d. $240,000

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  1. 27 March, 01:32
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    The answer is 240.000

    Explanation:

    In this case you have to draft the first scenario and then calculate the new scenario with the given information

    units price/cost total

    Revenue 100,000.00 10.00 1,000,000.00

    Variable expenses 100,000.00 6.00 (600,000.00)

    Contribution margin 100,000.00 4.00 400,000.00

    Fixed expenses (300,000.00)

    Net income 100,000.00

    then calculate the new revenue

    New price is = (price * (1+selling price increase)) = 10*1.2 = 12

    Calculate the expected units

    Expected units = (actual units sold * (1-decrease in sales) = (100.000 * (1-0.1)) = 90.000

    Revenue 90,000.00 12.00 1,080,000.00

    Variable expenses 90,000.00 6.00 (540,000.00)

    Contribution margin 90,000.00 6.00 540,000.00

    Fixed expenses (300,000.00)

    Net income 240,000.00
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