Clarkson Computer Company Distributes a Specialized Wrist Support That Sells

question 53

Essay

Clarkson Computer Company distributes a specialized wrist support that sells for $30.The company's variable costs are $12 per unit; fixed costs total $360,000 a year.
Required:
a.If sales increase by $41,000 per year, by how much should operating income increase?
b.Last year, Clarkson sold 32,000 wrist supports.The company's marketing manager is convinced that a 6% reduction in the sales price, combined with a $50,000 increase in advertising, will result in a 30% increase in sales volume over last year.Should Clarkson implement the price reduction? Why or why not?

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Definitions:

Stated Rate

The interest rate declared on a financial instrument, such as a bond or a loan, which is fixed and does not change over the life of the instrument.

Term

In finance, it refers to the period of time until a loan matures; in a broader sense, it can describe any specific duration or the definition of a concept or agreement.

Receivable

Money owed to a company by its customers or clients for goods or services delivered or used but not yet paid for.

Direct Write-Off Method

An accounting method where uncollectable accounts receivable are directly written off against income at the time they are deemed irrecoverable.