Question
ABC Inc. sells a product for $10 per unit. Variable costs are $4 per unit and total fixed costs equal $40,000. If sales increase from 10,000 units to 14,000 what will be the increase in overall profit?
Multiple choice question.
$40,000
$4,000
$44,000
$24,000
Multiple choice question.
$40,000
$4,000
$44,000
$24,000
Answers
GPT-4o mini
To determine the increase in overall profit when sales increase from 10,000 units to 14,000 units, we first need to calculate the contribution margin per unit and then the total contribution margin for the increased sales.
1. **Calculate contribution margin per unit**:
\[ \text{Selling Price} - \text{Variable Costs} = \text{Contribution Margin per Unit} \]
\[ 10 - 4 = 6 \text{ dollars per unit} \]
2. **Calculate the increase in sales volume**:
\[ \text{Increase in Volume} = 14,000 - 10,000 = 4,000 \text{ units} \]
3. **Calculate total contribution margin for the increase in sales**:
\[ \text{Total Contribution Margin Increase} = \text{Increase in Volume} \times \text{Contribution Margin per Unit} \]
\[ 4,000 \times 6 = 24,000 \text{ dollars} \]
4. **Since fixed costs remain the same, the total increase in profit is equal to the total contribution margin increase**:
The overall profit increase is **$24,000**.
So, the correct answer is:
**$24,000**
1. **Calculate contribution margin per unit**:
\[ \text{Selling Price} - \text{Variable Costs} = \text{Contribution Margin per Unit} \]
\[ 10 - 4 = 6 \text{ dollars per unit} \]
2. **Calculate the increase in sales volume**:
\[ \text{Increase in Volume} = 14,000 - 10,000 = 4,000 \text{ units} \]
3. **Calculate total contribution margin for the increase in sales**:
\[ \text{Total Contribution Margin Increase} = \text{Increase in Volume} \times \text{Contribution Margin per Unit} \]
\[ 4,000 \times 6 = 24,000 \text{ dollars} \]
4. **Since fixed costs remain the same, the total increase in profit is equal to the total contribution margin increase**:
The overall profit increase is **$24,000**.
So, the correct answer is:
**$24,000**