Beach Surf Boards is making a decision on whether to add long boards as a new product line to complement its short boards. A recent analysis determined that the average long board can be sold for $300.00 with unit variable costs of $225. Fixed costs are currently $51,000 per month but would be increased to $69,000 if long boards are added. How much is the incremental profit or (loss) if long boards are added and its sales volume is expected to be 250 units?

Question

Business

Melissa Blake

1 November, 20:22

Beach Surf Boards is making a decision on whether to add long boards as a new product line to complement its short boards. A recent analysis determined that the average long board can be sold for $300.00 with unit variable costs of $225. Fixed costs are currently $51,000 per month but would be increased to $69,000 if long boards are added. How much is the incremental profit or (loss) if long boards are added and its sales volume is expected to be 250 units?

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Answers (1)

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Avery Grimes · Answer 1

profit increase by 750 dollars

Explanation:

We must base our analisys considering only the loan board associated cost:

contribution per long board:

300 sales price - 225 variable cost = $75

total contribution for 250 units:

250x$75 = 18,750

increase in fixed cost:

69,000 - 51,000 = 18,000

incremental operating profit:

18,750 contribution - 18,000 fixed cost = 750