Cabebe Corporation Manufactures Numerous Products, One of Which Is Called

question 170

Essay

Cabebe Corporation manufactures numerous products, one of which is called Omicron55. The company has provided the following data about this product:
Required:
a. Management is considering decreasing the price of Omicron55 by 4%, from $54.00 to $51.84. The company's marketing managers estimate that this price reduction would increase unit sales by 10%, from 140,000 units to 154,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will Omicron55 earn at a price of $51.84 if this sales forecast is correct?
b. Assuming that the total traceable fixed expense does not change, if Cabebe decreases the price of Omicron55 to $51.84, what percentage change in unit sales would provide the same net operating income that it currently earns at a price of $54.00? (Round your answer to the nearest one-tenth of a percent.)

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Definitions:

Return on Total Assets

A financial ratio that measures a company's profitability in relation to its total assets, indicating how effectively a company uses its assets to generate profit.

Semiannual Interest Payment

A finance term referring to the practice of making interest payments twice a year on a loan or bond.

Bonds

Debt instruments signifying an investment made by an investor in the form of a loan to either a corporation or a government entity.

Journal Entries

Records of financial transactions in the books of accounts, acting as the primary source for all accounting processes.