Sugar Corp has a selling price of $25, variable costs of $10 per unit, and fixed costs of $30,000. Maple expects profit of $305,000 at its anticipated level of production. If Sugar sells 5,500 units more than expected, how much higher will its profits be

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Business

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1 August, 20:32

Sugar Corp has a selling price of $25, variable costs of $10 per unit, and fixed costs of $30,000. Maple expects profit of $305,000 at its anticipated level of production. If Sugar sells 5,500 units more than expected, how much higher will its profits be

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Answers (1)

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Esther Brennan · Answer 1

Profits will be $22.495 higher.

Explanation:

Profit is the difference between sales and cost

Profit = price * sales - ((Variable cost * sales) + Fixed cost)

First we have to get the sales when we have $305,000 of profit.

Profit - Fixed cost = price * sales - (Variable cost * sales)

Profit - Fixed cost = (price - Variable cost) * sales

(Profit - Fixed cost) / (price - Variable cost) = sales

Sales = (Profit - Fixed cost) / (price - Variable cost)

Sales = (305,000 - 30,000) / (25 - 10)

Sales=275,000/15=18.333

If Sugar sells 5,500 units more than expected

Then, new sales are:

Sales=18.333+5,500=23.833

Profit = price * sales - ((Variable cost * sales) + Fixed cost)

Profit² = 25 * 23833 - ((10 * 23833) + 30000) = 327.495‬

Improvement = Profit - Profit²=$305,000-327.495‬ = $22.495