Basic Decision Analysis Using CVP Cambridge, Inc., is considering the introduction of a new…

Basic Decision Analysis Using CVP

Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:

Sales price

$ 18 each

Variable costs

10 each

Fixed costs

20,000 per month

Assume that the projected number of units sold for the year is 7,000. Consider requirements ( b ), ( c ), and ( d ) independently of each other.

Required

a. What will the operating profit be?

b. What is the impact on operating profit t if the sales price decreases by 10 percent? Increases by  20 percent?

c. What is the impact on operating profit t if variable costs per unit decrease by 10 percent? Increase by 20 percent?

d. Suppose that fixed costs for the year are 10 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 t for the year? Will profit t go up? Down? By how much?