4 PTS The Suit Factory sells suits. Currently, it sells20,000 suits annually at an average price of $150each. It is considering adding a lower-priced lineof suits that sell for $120 each. The firm estimatesit can sell 8,000 of the lower-priced suits but willsell 3,000 fewer of the higher-priced suits bydoing so. What is the amount of the sales thatshould be used when evaluating the addition ofthe lower-priced suits?A. $510,000 B. $420,000 C. $605,000 D. $530,000

We determine the amount of sales to be used when evaluating the addition of the lower-priced suits…

Answered: The Suit Factory sells suits.…

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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Sparkle, Inc., sells customized accessories. Currently, it sells 10, 000 sparkly phone cases annually at an average price of $55 a case. It is considering adding a lower -priced (less sparkly) line of phone cases, which sell for $29 a pair. Sparkle, Inc., estimates it can sell 5,000 of the lower-priced cases but will sell 1,000 less of the higher-priced cases by doing so. What is the dollar amount of sales that should be used when evaluating the addition of the lower-priced phone cases?
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Hyperion Inc., currently sells its latest high-speed color printer, the Hyper 500, for $350. Its cost of goods sold for the Hyper 500 is $200 per unit, and this year's sales (at the current price of $350) are expected to be 20,000 units. Hyperion plans to lower the price of the Hyper 500 to $300 one year from now. a. Suppose Hyperion considers dropping the price to $300 immediately, (rather than waiting one year). By doing so, it expects to increase this year's sales by 25% to 25,000 units. What would be the incremental impact on this year's EBIT of such a price drop? b. Suppose that for each printer sold, Hyperion expects additional sales of $75 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)?
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