This is an old post but I just figured it out.
A company that produces 10,000 units has fixed costs of $300,000, variable costs of $50 per unit, and a sales price of $85 per unit. After learning that its variable costs will increase by 20%, the company is considering an increase in production to 12,000 units. Which of the following statements is correct regarding the company’s next steps?
If production is increased to 12,000 units, profits will increase by $50,000.
If production is increased to 12,000 units, profits will increase by $100,000.
If production remains at 10,000 units, profits will decrease by $50,000.
If production remains at 10,000 units, profits will decrease by $100,000.
If production remains at 10,000 units WITH the increase in VC it'll lose 100,000 in profit. What you do is compare, 10,000 units x 50 to 10,000 units x 60.
850,000 – 500,000 = 350,000 CM or profit. 850,000 – 600,000 = 250,000, so that's a difference of 100,000, if project remains at 10,000. Took me a while to figure it out but wish I knew a short to solve.
I guess the short cut is 10,000 units x 50 vs. 10,000 units x 60 and you'll know it'll be a difference of 100,000. I guess the way the question is set up you'd think you'd need to compare the 12,000 units x 25 to the 10,000 units x 35.
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