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8 October, 01:04

In 2010, the MoreForLess Company had revenues of $2,000,000 while costs were $1,500,000. In 2011, MoreForLess will be introducing a new product line that will generate $200,000 in sales revenues and $160,000 in costs. Assuming no changes are expected for the other products, the differential operating profit for 2011 is

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  1. 8 October, 03:15
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    Differential profit Profit = $40,000

    Explanation:

    The differential operating profit is the difference between the operating profit before the introduction of the product and after the introduction of the new product

    Profit = Revenue - costs

    Profit before the introduction of the new product

    = 2,000,000 - 1,500,000 = 500,000

    Profit after the introduction of the new product

    New revenue = (2,000,000 + 200,000) = 2,200,000

    Cumulative cost = 1,500,000 + 160,000 = 1,660,000

    Profit = 2,200,000 - 1,660,000 = 540000

    Differential profit Profit = 540,000 - 500,000 = $40,000
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