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Alpha company has provided the following data: Sales 12,000 units Sales price $100 per unit Variable cost $60 per unit Fixed cost $300,000 Management believes that if the selling price were decreased by $10 per unit and an additional $20,000 were spent on advertising that the sales would increase by 45%
Alpha company has provided the following data:
Sales
12,000 units
Sales price
$100 per unit
Variable cost
$60 per unit
Fixed cost
$300,000
Management believes that if the selling price were decreased by $10 per unit and an additional $20,000 were spent on advertising that the sales would increase by 45%. What would the change in net income be? Should Alpha go forward with the reduced selling price and new advertising campaign?
Expert Solution
As Net income is increased be ($202,000-$180,000) $22,000. So, Alpha should go forward with the reduced selling price and new advertising campaign.
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