The sales department thinks it could sell the product at a slightly higher price of $45/unit, but if the price is raised, it may lose 10% if sales volume in units.
What would the expected profitability be if this higher selling price/unit in fact occurred.
If you can answer please help me.
To calculate the expected profitability with the higher selling price, we need to consider both the increase in revenue from the higher price and the decrease in sales volume.
Here are the steps to calculate the expected profitability:
1. Determine the current selling price per unit and the current sales volume.
- Let's assume the current selling price is $40 per unit.
- Let's assume the current sales volume is 1,000 units.
2. Calculate the current total revenue:
- Total revenue = Current selling price per unit * Current sales volume
- Total revenue = $40 * 1,000 units
3. Determine the new selling price per unit after the increase.
- The sales department suggests raising the price to $45 per unit.
4. Calculate the potential decrease in sales volume.
- The sales department predicts a 10% decrease in sales volume.
5. Calculate the new sales volume:
- New sales volume = Current sales volume - (10% of Current sales volume)
- New sales volume = 1,000 units - (10% * 1,000 units)
6. Calculate the new total revenue:
- New total revenue = New selling price per unit * New sales volume
- New total revenue = $45 * New sales volume
7. Calculate the expected profitability:
- Expected profitability = New total revenue - Current total revenue
By following these steps, you can calculate the expected profitability. Just plug in the values and perform the calculations.