Ajax Corporation Is Performing a Sensitivity Analysis on One of Its

question 92

Multiple Choice

Ajax Corporation is performing a sensitivity analysis on one of its product.The product currently sells for $210 per unit, with variable cost of $90 per unit and fixed costs of $400,000.Ajax currently sells 12,000 units of this product.Ajax is considering raising its price by 15%.If prices increase, then it is expected that units sold will decrease by 10%.Calculate the change in operating income.

• A)$196,200 decrease
• B)$248,500 decrease
• C)$196,200 increase
• D)$248,500 increase

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Definitions:

Diseconomies of Scale

The phenomenon where, beyond a certain point, the cost per unit increases as a company continues to grow in size and output.

Per-Unit Cost

The average cost for each product produced, calculated by dividing the total production costs by the total units produced.

Output

The total quantity of goods or services produced by a firm, sector, or economy within a certain period of time.

Explicit Costs

Payments by a firm to purchase the services of productive resources.