Question 900434: Waterways markets a simple water control and timer that it mass-produces. During 2013, the company sold 696,000 units at an average selling price of per solution $4.20 per unit. The variable expenses were $1,900,080, and the fixed expenses were $683,256.
If sales increase by 51,000 units and the cost behaviors do not change, how much will income increase on this product?
Answer by JulietG(1812)   (Show Source):
You can put this solution on YOUR website! In 2013, the company sold 696k units at $4.20 for a gross revenue of $2,923,200.
Their fixed expenses (those that do not change based on number produced) were 683,256. Their variable expenses (costs per unit on top of the fixed expenses) were 1,900,080. 1,900,080/696000 = $2.73 per unit.
If they increase production by 51,000 units, their cost will increase by 51000*2.73, or $139,230. However, their gross revenue will increase by 51000*4.20, or $214,200, for an increased profit of $74,970.
This is why larger companies can sell things less expensively than the same product produced by a smaller one.
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