Grove Audio is considering the introduction of a new model of wireless speakers with the following price and cost characteristics.Sales price$ 430per unitVariable costs190per unitFixed costs624,000per yearAssume that the projected number of units sold for the year is 3,750. Consider requirements (b), (c), and (d) independently of each other.Required:What will the operating profit be?What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent?What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?

Answered: Grove Audio is considering the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sales price	$ 430	per unit
Variable costs	190	per unit
Fixed costs	624,000	per year

Required:

What will the operating profit be?
What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent?
What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?
Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?

Expert Solution

Step 1

The operating profit is the difference between the revenues and the operating costs. The profit is higher when the cost are low. The operating profit is important for a business because a business that suffers continuous operating loss will not be able to survive.